For the past year, Federal Reserve Chair Jerome Powell has expressed a wish for more rescue spending from Congress, better control of the viral pandemic, and clear evidence of an improving economy.
He's finally getting all three. Yet all of that hardly makes Powell's job easier.
At the Fed's policy meeting this week and at a news conference to follow, the chair will take up a new challenge: Convincing financial markets that even as the economic picture brightens, the Fed will be able to continue providing support without contributing to high inflation. Powell's message will likely be that the economy still needs substantial backing from the Fed in the form of short-term interest rates near zero and bond purchases that are intended to lower long-term borrowing rates.
Complicating the Fed's task is that investors envision a swift and robust recovery later this year that could accelerate inflation and send long-term rates surging. Behind that fear is the belief that as vaccines are more widely administered and money from President Joe Biden's $1.9 trillion rescue package flows through the economy, growth will accelerate so fast that the Fed will feel compelled to quickly raise rates to quell inflation pressures. If that were to happen, the economy could suffer another setback.