Fed's Powell expects being 'patient' on signs of inflation increase

• The Fed expects it will "be patient" with policy as it waits for inflation to trend higher, Chair Powell said.
• Treasury yields soared last week as investors bet on the Fed to tighten monetary policy sooner than expected.
• Reopening stands to lift inflation, but Powell said the effect will likely be transitory.

Federal Reserve Chair Jerome Powell said Thursday he expects the central bank will "be patient" in waiting for inflation to steadily trend above 2%.

Treasury yields ripped higher last week as investors viewed new stimulus and continued vaccination as opening the door for stronger price growth and, in turn, an earlier tightening of monetary conditions. The price action projected the Fed could lift interest rates as early as the second quarter of 2022, well before previous expectations for a rate hike coming after 2023.

The Fed chief's comments are the first to reaffirm that, despite the Treasury market's shift, the central bank is steadfast in maintaining its ultra-easy monetary policy. Economic reopening will likely lift prices, but only for a short while, Powell said.

"It is more likely that what happens in the next year or so is going to amount to prices moving up, but not staying up. And certainly not staying up to the point where they would move inflation expectations above 2%," Powell said in a videoconference hosted by The Wall Street Journal.

The Fed chief took a somewhat soft approach toward addressing the recent Treasury-market volatility. The sell-off was "notable," but yields are part of a "broad range of financial conditions" the Fed monitors, he said.

"I would be concerned by disorderly conditions in markets or persistent tightening that threatens the achievement of our goals," Powell added, stopping short of deeming the sell-off concerning.

The comments did little to ease the Treasury market. Yields rose soon after Powell's speech to one-week highs, taking steam out of the stock market's rebound.

'A lot of ground to cover'

The Fed has indicated it won't retract its policy stance until it makes "substantial further progress" toward reaching its dual mandate of above-2% inflation and maximum employment.

There's "good reason" to assume the economy will soon make headway on the two goals, Powell said. But it will still take "some time" to see movement that warrants a policy adjustment, he added.

There remains "a lot of ground to cover" for the Fed's employment target, specifically, Powell said. The unemployment rate is just one of several metrics tracked by the central bank, and Powell indicated that improved wage growth and labor-force participation are necessary for the Fed to see before it pulls back.

"Yes, 4% would be a nice unemployment rate, but it would take more than that to get to maximum employment," he said.

Data released this week suggests the labor market's recovery hasn't yet picked up after slowing through the winter. Weekly jobless claims rose slightly last week and hover at the same levels seen since the fall.

ADP's monthly employment report also disappointed. Private-payroll gains totaled 117,000 in February, according to the firm. That's well below the 200,000 payrolls expected by economists.