The Fed's policy is adapting to the evolving economic environment, Federal Reserve Chair Jerome Powell said during the post-monetary policy decisionpress conference.
"Economy has shown great strength and resilience in the face of the pandemic," he notes, adding that Omicron is sure to weigh on growth this quarter.
The virus also continues to keep some workers on the sidelines, he said. Meanwhile, "wages have risen briskly" and the Fed is aware of risks of increasing inflation.
He reaffirms that the federal funds rate remains the central bank's primary tool for monetary policy.
Press conference ends. The Nasdaq is down 0.7%,S&P-1.0%, Dow-1.1%. 10-year Treasury yield up 6 bps to 1.84%.
Asset prices are "somewhat" elevated and represent; overall financial stability, vulnerabilities "are manageable."
On the balance sheet runoff, "we're going to need to be nimble," as the economy is quite different than it was during the last cycle.
"We do monitor the slope of the yield curve, but we don't control the slope of the yield curve," he said, noting there are a number of factors that contribute to the curve. Powell doesn't say how that would affect the Fed's policy decisions.
"The labor market is going to be strong for some time," Powell said. The Fed's goal is to get inflation down to 2% without hurting the labor market. Currently, he doesn't expect that tightening policy to bring down inflation will hurt the labor market. In this case, the Fed will be watching incoming data was well as monitoring the outlook.
Powell expects progress to be made on supply chain issues in the second half of the year, but he doesn't expect them to be totally resolved by the end of the year. Right now, "we are not making progress," he said.
"Inflation has probably gotten just a bit worse since the last Fed meeting," he said. At 3:07 PM: stocks drop, with all three major averages in the red — Nasdaq -0.5%, S&P 500 -0.6%, Dow -0.7%.
Among risks to the Fed's economic outlook, Powell points out "COVID is not over," further supply disruptions, and tensions in Eastern Europe.
"Inflation risks are still to the upside. There's a risk it will be prolonged and a risk it will move even higher." That's not the Fed's base case, though.
"The balance sheet is substantially larger than it needs to be ... so there's a substantial amount of shrinking to be done," he said. That will be done in a predictable and orderly way. The policymakers haven't yet discussed a lot of the details, he added.
"We're well aware that this is a different economy than during the last cycle," Powell said, in emphasizing that the Fed will adjust any details of its actions depending on incoming data.
The Fed is "of a mind" to raise the federal funds rate at the March meeting.
"We feel like the communications we have with the markets and general public is working," he said.
10-year Treasury yield jumps almost 7 basis points to 1.84%.
There was "very broad support" across the committee that it will soon be appropriate to raise rates, he said. "I think there's quite a bit of room to raise rates without hurting the labor market," he said. Conditions in both the labor market and for prices make raising rates appropriate, Powell added.
"We haven't made any decisions on the path of policy... We're going to be guided by the data," Powell said, when asked if the Fed will consider raising rates at every meeting going forward.
The policymakers will discuss the timing and pace of reducing the Fed's balance sheet at upcoming meetings, Powell said.
Earlier, The Fed says it will soon be appropriate to hike interest rates.
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