The Federal Reserve Building in Washington, DC. The Fed kept its benchmark interest rate unchanged after raising interest rates in March. (File photo: Karen Bleier, AFP)
The Federal Reserve said on Wednesday that the US economy is showing signs of progress in recovery, but it is not enough to end the loose monetary policy implemented last year.
The Federal Open Market Committee (FOMC) announced after the end of the two-day meeting that the Federal Reserve’s policy formulation has helped promote business activities and employment, although the industries hardest hit by the Covid-19 pandemic “have shown Improved but not yet fully restored” meeting.
The central bank warned that “economic outlook risks still exist” and said it will monitor economic progress before withdrawing the bond purchase plan.
The statement stated that, noting its goal of restoring full employment in the longer term and inflation rate higher than 2%, “the Committee expects to maintain an easy monetary policy stance until these results are achieved.”
Although Fed Chairman Jerome Powell will have the opportunity to address this issue at a press conference starting at 1830 GMT, the Federal Open Market Committee has not further hinted when bond purchases may be reduced.
He promised to warn in advance before making any changes to the asset purchase.
The U.S. Central Bank reduced the benchmark lending rate to zero at the beginning of the pandemic and implemented a large-scale bond purchase program to provide liquidity to the economy.
The Federal Reserve currently purchases at least $80 billion in Treasury bonds and at least $40 billion in agency mortgage-backed securities every month.
Uncertain time
The governors of the central bank meet at a moment of uncertainty in the world’s largest economy. The rapid spread of Covid-19, the Delta variant, has prompted the re-implementation of mask wearing regulations in parts of the United States, and has raised concerns that it might undermine the recovery.
However, with the widespread supply of the Covid-19 vaccine, businesses reopened and inflation soared, the annual consumer price index (CPI) in June reached 5.4%, the highest level since August 2008.
Central bank officials admitted that they were surprised by the scale of the inflation spike, but the statement again attributed the spike to “temporary factors.”
In his testimony earlier this month, Powell stated that there is no urgent need to change the bank’s policies because after the Covid-19 pandemic, the world’s largest economy still has “a long way to go” to return to full employment.
The Federal Reserve has stated that it is willing to allow inflation to exceed its 2% target for a period of time so that the economy can return to full employment after the Covid-19 devastation.
Many private economists agree with the central bank’s assessment that the price surge is temporary and is likely to peak in June, but this has not softened the Fed’s review.
Powell has previously stated that the price surge is driven by a “perfect storm” of high demand and low supply, and pointed out that global semiconductor shortages and other issues have hindered automobile production-as the bottleneck is lifted, these factors should dissipate.
