Federal Reserve press conference, 2021-01-27 — Chair Jerome Powell

Question (Michael McKee, Bloomberg): All right. My follow-up question is, a lot of people in the markets think that you’re basically stuck right now, because you can’t really go lower with the zero bound, rejecting negative interest rates, and you can’t really go higher because of the threat of a taper tantrum. Is the Fed locked into a very narrow corridor now? And, if not, you did say you would signal any change in interest rates a long time ahead. But [former] New York Fed President Bill Dudley says there’s no way you can avoid a taper tantrum. So how do you do that?
Answer: Well, first, I—we, we think our policy stance is, is just right. We think it’s providing significant support for economic activity and hiring. We, you know, we, we adopted a new monetary policy framework of flexible average inflation targeting in August. In September, we, we implemented rate guidance that, that was consistent with and based on that new framework. In December, we did the same for asset purchases. So we now have, you know, strong guidance on, on rates and on asset purchases that’s providing very strong support for economic activity. If you look at the sectors of the economy that are interest sensitive, you will see very strong activity: housing, durable goods, automobile sales. So, you know, our, our policies are working. And we think that, that they are—we think our policy stance is, is right. That said, there’s clearly more that we can do. With asset purchases, for example, we can, you know—that’s, that’s a tool we can do more—we can strengthen our guidance, too, if we were to think that that were appropriate. What you see is an economy where what’s holding it back is not the lack of, of policy support from the Fed. It’s the pandemic. It’s, it’s the spread of the disease and people’s reluctance or, or inability to partake in certain kinds of economic activities, which amount to a, a meaningful part of the economy. So that’s, that’s what I would say. We certainly have things that we can do, but we think we’re—we think we’re in the right place. You know, in terms of—in terms of tapering, it’s just premature. We just created the, the guidance. We said we’d want to see substantial further progress toward our goals before we modify our, our asset purchase guidance. It’s just too early to be talking about dates, which we should be focused on, on progress. We’ll need to see actual progress. And when, when we see ourselves getting to that point, we’ll communicate clearly about it to, to the public so nobody will be surprised when the time comes. And we’ll do that well in advance of actually considering what will be a pretty gradual taper.