5 Quotes From Federal Reserve Chairman Jerome Powell On Helicopter Money, Inflation, And Economy

Everyone’s worried about the economy. The covid pandemic has turned the economy upside down. Add to this the tumultuous election, and things seem poised for economic disaster. But Federal Reserve Chairman Jerome Powell says he’s optimistic about the future. Powell recently conducted a Q&A session presented by Princeton University just as President-elect Joe Biden unveiled a new covid stimulus plan.

Powell’s talk was also timed for the same day that the Labor Department reported the highest rise in jobless claims since August.

“Every economy, and certainly our economy, faces plenty of longer-run challenges,” Powell said. “But I would say there were no obvious imbalances that threatened the ongoing expansion.”

Here are five quotes from Powell on helicopter money, inflation, and the economy.

1. Inflation

According to Powell, interest rates won’t be going up — yet.

“When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon,” the central bank chief said.

He added, “If inflation were to move up in ways that are unwelcome, we have the tools for that, and we will use them. No one should doubt that.”

“The dovish comments reinforced expectations that the Fed will allow inflation to rise above the Fed’s target of 2 percent for longer before raising rates,” Reuters reported.

2. Helicopter money

Helicopter money refers to increasing a nation’s money supply through more spending, tax cuts, or boosting money supply, according to Investopedia.

Stimulus packages are a form of helicopter money. According to Powell, the first stimulus package helped the economy and a new one proposed by Biden should do the same.

“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,” Powell said.

Biden’s coronavirus stimulus proposal, which could carry a price tag of at least $1.5 trillion, is widely expected to include a commitment for $1,400 stimulus checks, an extension of supplemental unemployment benefits that are poised to expire in March, funding for vaccine distribution and aid for state and local governments, Fox Business News reported.

“Former Fed chair Ben Bernanke many years ago suggested that if things really get bad, there’s always helicopter money,” Veteran Wall Street strategist Ed Yardeni of Yardeni Research told Yahoo Finance’s The Final Round. “Helicopter money would be actually something that both [president] Trump and [Fed chairman] Powell… could agree on. Because the president wants tax cuts. And if the tax cuts are paid for with ultra easy monetary policy, guess what? That’s helicopter money.”

3. Economy

Powell said the economy could return to pre-coronavirus pandemic level “fairly soon” thanks to a torrent of monetary and fiscal aid over the past year.

4. The Pandemic

The coronavirus pandemic, and the economic shutdown that it caused, resulted in more than 20 million jobs being slashed. Before the crisis, unemployment was at a half-century low.

“You’re in a situation where we could be back to the old economic peak fairly soon, and passing it,” Powell said. “We may bypass a lot of the damage that we were concerned about to low- and moderate-income people, who by the way still have very high unemployment, but with the reopening of the service economy later this year, we hope we’ll get back there.”

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5. Employment

In regard to employment, Powell pointed out that the Fed’s new approach to inflation is that “it will not raise rates even if unemployment falls below levels that historically would have been considered a warning sign for pricing pressures ahead,” CNBC reported.

“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,” Powell said.