WASHINGTON — The Federal Reserve will start dialing back its ultra-low-rate policies this year as long as hiring continues to improve, Chair Jerome Powell said Friday, signaling the beginning of the end of the Fed's extraordinary response to the pandemic recession.

In a speech given virtually to an annual gathering of central bankers and academics, Powell said the economy had improved significantly this year, with average hiring in the past three months reaching the highest level on record for any similar period before the pandemic. Fed officials are monitoring the rapid rise in infections from the delta variant, he said, but they expect healthy job gains to continue.

The Fed has been buying $120 billion a month in mortgage and Treasury bonds to try to hold down longer-term loan rates to spur borrowing and spending. Powell's comments indicate the Fed will likely announce a reduction — or “tapering” — of those purchases sometime in the final three months of this year. Most economists expect the announcement in November, with tapering actually beginning in December.

Powell stressed that the Fed's tapering of its bond purchases does not signal that it plans anytime soon to start raising its benchmark short-term rate, which it's kept near zero since the pandemic tore through the economy in March 2020. Rate hikes won't likely begin until the Fed has finished winding down its bond purchases, which might not occur until mid-2022. Powell said the Fed would need to see much further economic improvement before it would begin raising its key rate, which influences many consumer and business loans.

“We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2% inflation on a sustainable basis,” Powell said, referring to the Fed's target inflation rate.

Inflation is much higher than 2% now, Powell acknowledged, but he underscored his view that the current price spike is temporary. He warned that history shows that raising rates too soon, in response to temporary price increases, can weaken hiring, and hurt the unemployed.

Such comments bolstered the notion that the Fed is still a long way off from raising its benchmark short-term rate.

“If anything this was a calming speech,” said Brian Bethune, an economist at Boston College. “There's nothing here in the short run that will stampede interest rates higher.”

Over time, the end of the Fed's bond-buying could put upward pressure on borrowing costs for mortgages, credit cards, and business loans. As Powell spoke Friday, though, the yield on the 10-year Treasury note, which closely influences the 30-year mortgage rate, declined to 1.32% from 1.34% Thursday.

Stock investors, too, appeared to welcome Powell's message of a gradual withdrawal of the Fed's economic support and his view that surging inflation pressures will likely prove temporary. The Dow Jones Industrial Average rose a sharp 230 points, or nearly 0.7%, several hours after the Fed chair spoke.

Powell also noted that while average wages have risen, they haven't increased enough to raise fears of a “wage-price spiral,” as occurred during the ultra-high-inflation 1970s.

“Today,” he said, “we see little evidence of wage increases that might threaten excessive inflation.”

If anything, Powell said, the factors that helped keep inflation super-low for years before the pandemic — the growth of online retail, lower-cost goods from overseas, slowing population growth — could re-emerge as the pandemic fades.