With interest rates climbing amid stock and index ETF consolidations recently, Federal Reserve Chairman Jerome Powell reassured investors of his commitment to maintaining low interest rates going forward, expressing optimism for a healthy and robust economic recovery while maintaining inflationary pressures.
“When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon,” Powell said Thursday during a Q&A session presented by Princeton University.
In its most recent policy statement from December, the policymaking Federal Open Market Committee expressed its desire to keep an accommodative position until it notes “substantial further progress” towards employment and inflation goals.
With unemployment data in the focus today, the Fed chief also stressed the central bank’s new attack on inflation, in which it will maintain rates even if unemployment dips below levels that historically would have projected increasing pricing pressures.
“That wouldn’t be a reason to raise interest rates, unless we start to see inflation or other imbalances that would threaten the achievement of our mandate,” he said.
One such imbalance would be inflation. In recent days, a few Fed officials have admonished investors that inflation could jump sooner than the Fed anticipates and compel the removal of some policy accommodations faster than committee members have projected.
Inflationary Prospects for 2021
Since last year, the Fed’s benchmark short term borrowing rate has been tethered close zero, and the central bank is continuing to purchase debt to the tune of at least $120 billion in bonds each month. Core inflation is running around 1.4%, substantially lower than the Fed’s 2% target.
“If inflation were to move up in ways that are unwelcome, we have the tools for that, and we will use them,” he said. “No one should doubt that.”
Powell sounded sanguine about prospects for the economy in the coming year, acknowledging the unemployment data from Thursday, where first-time claims for unemployment insurance reached 965,000 last week, significantly more than a prediction of 800,000 new claims from economists surveyed by Dow Jones..
“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,” he said.
“Every economy, and certainly our economy, faces plenty of longer-run challenges,” he said. “But I would say there were no obvious imbalances that threatened the ongoing expansion. You really can’t identify something that looked like if this blows up, the expansion.”
For investors looking at ETFs to trade in an environment with inflationary questions, Horizon Kinetics LLC has announced the launch of its first ETF, the Inflation Beneficiaries ETF (INFL), an actively managed fund that began trading on the New York Stock Exchange (NYSE) on Tuesday.
“This portfolio is designed to provide a full cycle inflation exposure and seeks to thrive under many different inflation scenarios. We believe this is possible because the Fund emphasizes companies that have exposure to inflationary underlying assets, yet do not have high capital intensity,” added James Davolos, Portfolio Manager.
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