Powell also stressed that the Fed probably won't raise its rate until inflation has topped 2% for some time.
“When the time comes to raise interest rates, we’ll certainly do that," he said. “And that time, by the way, is no time soon.”
Powell's remarks Thursday follow recent speculation in financial markets that the Fed might start reducing its bond purchases as early as this year, sooner than was previously expected. Investors have been selling Treasuries, increasing the yield on the 10-year Treasury note in the past week to about 1.1%, up from 0.9%.
The speculation was fueled by comments from several regional Fed bank presidents, including Raphael Bostic of the Atlanta Fed and Robert Kaplan of Dallas. Bostic said last week that he was “hopeful that in fairly short order we can start to recalibrate” the bond purchases. Bostic is a voting member of the Fed's policymaking committee this year.
Members of the Federal Reserve's Board of Governors, who carry particular weight on rate decisions, have stressed that any tapering of bond purchases won't occur for months at least. One of them, Richard Clarida, said last Friday that he thought the purchases would likely continue at least into next year.
And Lael Brainard, another governor, said Wednesday that the current level of bond buying “will remain appropriate for quite some time.”
Some regional Fed bank presidents have signaled that any reduction in bond purchases is probably a long way off. Eric Rosengren, president of the Boston Fed, said in an interview with The Associated Press that “we are still very far from full employment.... Right now, we’re still in a recessionary economy, and we need to get out of that.”
Fed officials want to avoid a repeat of what became known as the "taper tantrum," one of the Fed's worst communications blunders. It occurred in 2013 under Chairman Ben Bernanke, who suggested that the Fed might soon start reducing the bond purchases it was engaging in at that time in the wake of the Great Recession. Bernanke's remarks caught investors by surprise and triggered a spike in interest rates.
Powell, in fact, said that one lesson from the 2008-2009 downturn is, “be careful not to exit too early” from policies intended to boost the economy.
“And by the way, try not to talk about exit all the time ... because the markets are listening,” he said.
Still, Powell also said he was quite optimistic that the economy would rebound later this year, once COVID-19 vaccines are widely distributed.
“We were in a good place in February of 2020 and we think we can get back there, I would say much sooner than we had feared,” Powell said.