'Not the time' to discuss any change to bond purchases, says Fed's Powell

By Howard Schneider and Ann Saphir

(Reuters) - With the U.S. economy still far from its inflation and employment goals it is too early for the Federal Reserve to discuss changing its monthly bond purchases, Fed Chair Jerome Powell said Thursday.

"Now is not the time to be talking about exit," from the $120 billion in government securities the Fed is buying each month, Powell said in a web symposium with Princeton University. "A lesson of the Global Financial Crisis is be careful not to exit too early, and by the way try not to talk about exit all the time...because the markets are listening.""The economy is far from our goals...and we are strongly committed...to using our monetary policy tools until the job is well and truly done," Powell said, pushing back against recent suggestions from some of his colleagues that the Fed might consider trimming its bond purchases even later this year if vaccines supercharge an economic rebound.

Those suggestions may have contributed, if slightly, to a recent rise in yields on U.S. Treasury securities. Powell's comments came a day after other members of the Fed's Washington-based Board of Governors also made it clear the time for any "taper" is well off.

Yields on the benchmark 10-year Treasury note briefly edged lower on Powell's remarks.

Ill-timed Fed talk of trimming bond purchases after the 2007 to 2009 financial crisis at one point triggered rapid changes in global bond yields, a "tantrum" Fed officials don't want to repeat.

In this case, when the economy improves substantially, "and we can see that clearly, we will let the world know, communicating very clearly to the public, and do so well in advance of active consideration," of any policy changes, Powell said.

He said an interest rate increase as well would come "no time soon" given the depth of the economic problems related to the still-raging health crisis.

Fed officials on the whole are optimistic this will be the year the U.S. rebounds more fully from the health and economic ills of the pandemic that struck early in 2020 and drove the unemployment rate to a historic high of 14.8% in April.

The economy remains roughly 10 million jobs short of where it was in February, and nearly 1 million people made an initial claim for unemployment insurance in the week ending Jan. 9, evidence that the crisis for U.S. workers is far from over.

 

FOCUSING ON JOBS

Powell said the Fed's main focus is restoring the labor market to where it was before the pandemic, when opportunities had begun flowing more fully to lower-wage and less-skilled workers after a decade of unbroken economic growth.

The distribution of new coronavirus vaccines has boosted the outlook for recovery this year, and Powell said overall "we think we can get back there much sooner than feared" last spring when some analysts raised concerns of another Great Depression with years of high joblessness and weak or negative growth.

The incoming administration of President-elect Joe Biden is expected to try to speed that process as well with a $1.5 trillion spending plan expected to be introduced tonight.

"I just remember the discussions we had, which were pretty scary in March and April," when the virus was first spreading, Powell said. "But here we are now, with vaccines. The population is getting vaccinated and you're in a situation where we could be back to the old economic peak pretty soon."

The Fed chief cautioned that the next several months could be rough. "We've got to get through this very difficult period this winter with the spread of COVID, but as the vaccines go out and we get COVID under control, there's a lot of reason to be optimistic."

 

(Reporting by Dan Burns and Howard Schneider; Additional reporting by Ann Saphir and Jonnelle Marte; Editing by Chris Reese and Andrea Ricci)