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Is Powell “Fed” up with printing money?

Fed Chair Jerome Powell, recently made more dovish remarks that reassured everyone except for the dollar, which continued to trend lower. Powell said that most FOMC members do not consider it necessary to raise interest rates until 2024. Nevertheless, Powell cautiously hinted that another scenario is possible, saying that "it’s highly unlikely interest rates will rise before the start of 2022, but it all depends on the situation." He went on to say that the tapering of quantitative easing (QE), i.e., the Fed's bond purchases, will begin "well before raising interest rates." Powell's opinion was also supported by his deputy Richard Clarida, who said that QE would be phased out.

Most likely, the translation of Powell and Clarida's remarks from American English into layman’s language can be rendered as follows: “We’re tired of printing money, but we don’t know exactly when we will stop (either that or – we know, but we will not say yet)”. Despite all the outward appeal of the packages of state support for the US economy, proposed by Joe Biden and passed by Congress, it is clear that households will have to foot the bill for this helicopter money in the form of rising inflation. To remind, at the end of March, annualized consumer price inflation in the US rose to 2.6%, exceeding not only the Fed's target, but also the median consensus that called for only 2.5%.

Since the main threat to the US economy has so far been deflation, not inflation, in the near future the Fed will not make any sharp moves to tighten monetary policy, but as inflation overshoots the 2% target level, such sharp movement, that is, monetary policy shifts, will definitely be needed. In the near future, the Fed will most likely not pull back its accommodative stance, and at its April 28 meeting interest rates will remain within the current range of 0-0.25% (93% of US experts polled by Bloomberg expect such a decision from the FOMC). However, by autumn, at the September meeting, if inflation continues to gallop, the Fed may well tweak the QE program. The DXY index is down 1.7% since the start of April.

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