Federal Reserve Keeps Rates Unchanged but Cites ‘Progress’ Toward Its Goals
The Federal Reserve kept interest rates unchanged on Wednesday and said it would continue to buy large amounts of government debt, but suggested it could slow down those purchases before long if the economy continues to strengthen.
The Fed’s two main policy tools fuel demand by making money cheap to borrow and spend. Officials are actively debating when and how to slow down their bond buying program, which will be their first step towards a more normal political environment as the economy rebounds. Officials have hinted they will continue to think about when to start what they call the cut at future political meetings.
“Last December, the committee indicated that it would continue to increase its holdings ‘steadily’ until further substantial progress was made towards its maximum employment and price stability targets,” the Fed said. in its post-meeting press release. “Since then, the economy has made progress towards these goals, and the committee will continue to assess progress at future meetings. ”
The central bank has bought $ 120 billion worth of mortgage-backed securities and Treasury debt securities every month since last year, but economists expect the Fed to start slowing those purchases later. this year or early next year.
But the central bank is trying to avoid withdrawing support from the economy too abruptly at a time when millions of jobs are missing from before the pandemic and as risks to the economic outlook persist. These threats are only underscored by the increase in coronavirus cases in the United States and globally linked to the Delta variant.
“The sectors most affected by the pandemic have shown improvement but have not fully recovered,” the Fed said in its post-meeting policy statement.
Jerome H. Powell, the chairman of the Fed, will hold a press conference after the meeting at 2:30 p.m., during which he is expected to answer questions about the bond buying program.
Daily business briefing
The Fed is weighing conflicting economic signals as it shapes its policy. The US economy is rebounding from lockdowns last year and earlier this year, with strong consumer spending bolstered by repeated government stimulus checks. Inflation is taking off as economic activity rebounds from low 2020 levels and growing demand for washing machines, electronics, cars and housing exceeds what producers can supply.
Consumer prices rose 5.4% in June from a year earlier, the fastest pace since 2008. The Fed’s preferred inflation indicator was slightly more subdued, at 3.9% in May, but that too is well above the central bank’s 2% average inflation target.
Officials expect the rise in prices to calm down as the economy returns to normal. For now, they’re more worried about another set of risks: around 6.8 million jobs are still missing from February 2020 levels. Workers are taking time to find decent jobs, and central bank wants to make sure the economic recovery is strong as they try to do so.
Even when the Fed begins to slow down its bond purchases, interest rates are expected to stay low. Long-standing economic forces have naturally pushed them down, and the central bank is expected to keep its key policy rate – the federal funds rate – at its lowest, where it has been since March 2020.
Officials have previously reported that, barring a sustained surge in inflation or risks to financial stability, they would like to leave interest rates close to zero until the labor market returns to full employment. . Their latest economic projections, released in June, suggest most officials don’t expect the economy to hit that high bar until 2023.
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