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“Inflation is not a long-term threat” despite excessive cash pressure during the current crisis

Jerome Powell, President of the Federal Reserve (Lined), reported about the state of the economy at a hearing in the Senate on June 16.

During the first report on the economic situation and the measures taken by the Fed in response to the coronavirus crisis, The president listed all of the extraordinary measures the bank had taken since March.

Part of it included a unprecedented expansion of the Federal Reserve balance sheet, have acquired the securities on the market with newly printed money as part of the quantitative easing practice.

“Inflation is not a long-term threat” despite excessive cash pressure during the current crisis
“Inflation is not a long-term threat” despite excessive cash pressure during the current crisis

But the president was total optimistic about inflation prospects. He noted that demand is weak in the short term caused the price drop Clothing, gasoline, plane tickets and other industries affected by quarantine. For this reason, “consumer price inflation has decreased significantly in the past few months, “he said.

He added:

“Long-term inflation expectations have been fairly stable. As production stabilizes and the recovery progresses, inflation is expected to level off and gradually return over time. […] Inflation should remain below our target for some time. “

Balance is not a threat

On the concerns of Senator Richard Shelby (R-AL) about the scale size, Powell ruled out the resulting problems. “I don’t think the current balance sheet poses a real threat to inflation or financial stability,” he said.

He emphasized that eThe balance is only expanded if necessary, without making it “bigger than necessary”.

But that has been shown The Fed’s balance sheet is unlikely is removed after the crisis:

“When the moment comes [como] What we did from 2014 to 2017, we just freeze the size of the balance sheet and as the economy grows, the balance sheet decreases as a percentage of the economy. “

He explained that in the past The active reduction in the balance sheet has had an impact on the economy. However, a “passive” approach is not.

Powell’s optimistic view contrasts with the opinion of many market experts, who believe that the dollar could lose a significant portion of its value through inflation.

The rest of the session focused mostly on the prospects for the job market after the crisisand the recent decision to buy corporate bonds, which some senators criticized as unnecessary.

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