FED, Chairman Jerome Powell, Tim Rose Nick discussed on WSJ What's News

WSJ What's News
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Chairman jerome powell unveiled a new strategy a year ago in which the central bank would keep interest rates lower for longer since that time. We've seen the biggest inflation. Spike in decades with consumer prices rising five point four percent in july from a year earlier. So what should we expect to hear. From fed policymakers for some insight into the thinking at the fed we're joined by our chief economics correspondent nick. Tim rose nick. It's always good to have you here. It's great to be here mark nick. This conference begins when we're starting to see the impact of the delta variant in some parts of the economy such as travel for example. What's the feds outlook for the impact of delta on the economy. That's actually going to be a big question. Perhaps that chair powell will answer in his remarks on friday. I don't think anybody expects a sweeping policy change in the meeting. But it's kind of a case in point of the impact of delta a week ago. The kansas city fed which hosts this conference was planning to do it. In person they were requiring vaccinations for all attendees and late. last week. On friday afternoon The kansas city fed announced that they would scrap the in person conference and that they would do all virtual format which they did last year. So it's going to be hard for the fed to completely dismiss the impact of delta after the july meeting of the rate-setting committee chair pal did say that. The fed thought each successive wave of virus infections was having less and less of an impact on economic activity because we are learning to live with this thing. But it'll be interesting to see whether he modifies that view at all in his remarks on friday and so from your conversations with your sources is an interest rate hike announcement even on the table. No an interest rate hike discussion is not something that the fed is having right now. It's not something that they will talk about this year It's it's something that some members of the committee want to talk about for next year but what is on the table right now is something else. The fed has been buying one hundred twenty billion dollars a month of long term assets which is a way that they provide stimulus to the economy. Once they've already pushed interest rates down to zero and the question right now is one will. They begin to reduce the monthly pace of those hundred twenty billion dollars a month in purchases. What they call tapering. Those purchases and that is alive discussion The fed in their meeting last month. Talked about reducing our tapering. The purchases at some point this year and so there's a question as to whether they will signal that more strongly their september meeting next month. That's their next scheduled meeting or whether they will do something later in the year at their meetings in november or december and along those lines. What are some of the arguments that we may hear from the kansas city meeting and even beyond to tighten policy. Well there are two general camps one that says look The economy right now is being hit by supply shocks and so that's what's slowing growth and pushing down mortgage rates and encouraging people to go buy cars when prices are going up because builders can't build enough they don't have the materials they need when there's a shortage of semiconductors that are holding back that's holding back car production we really don't need to stimulate demand right now with these asset purchases and in fact a number of officials on the committee think that the purchases may be doing more harm than good then. There's another campus says. Well no we said we would continue these purchases until the economy made substantial further progress towards our employment and inflation goals and the labor market still needs to heal. And so we need to. We need to do what we said we would do. And continue with these purchases and so the trick for chair. Powell here is to find a consensus where he keeps enough people in both camps. Happy enough with the path forward and nick. Obviously economists are weighing in on this. But what about the white house itself. Does the biden administration see. Eye to eye with the chairman's approach. I mean it's still not known if he will be asked to return for a second term so far. The fed has really stuck to this view. Chair pal stuck to the view that these inflation pressures should reverse themselves over the next year. I think the fed has probably changed. Its view that originally. They were suggesting that this might be resolved in a matter of months. And they've backed away from that and that matches what the biden administration has been saying to. So there isn't any daylight so far on the inflation outlook between the fed chair in the white house and you know the more uncertain things get in the world. You look at what's happening in afghanistan and all the other problems that vitamin nistration has to deal with that would argue probably at the margins for maintaining the status quo with the fed chair who remains popular with both parties for the most part on capitol hill and in the markets. But it's not something that has been decided and it's not clear that president biden is going to make a decision until later in the fall There's a big fight coming on the debt limit. And it's possible that that doesn't get resolved until october and so that may push any decision on the fed chair and the other open positions Into october november. Nick tim rose thank you. We'll look forward to your reporting. Thanks so much. Mark.

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