[ad_1]
On Wednesday, the U.S. central bank prepared for the possibility of starting to withdraw some of the special support provided to the economy during the pandemic.
One of the biggest problems that currently plague the US economy is when the Federal Reserve will begin to control its cheap monetary policy.
On Wednesday, the Fed prepared for the possibility of starting to withdraw some of the special support given to the economy during the coronavirus pandemic.
The Federal Reserve, the central bank of the United States, concluded a two-day policy meeting on Wednesday and kept its benchmark interest rate unchanged. No big surprises. In March 2020, when the pandemic hit the US economy for the first time, the Fed cut interest rates to near zero.
However, the question discussed at the meeting is whether the Fed will send a signal that it is ready to start reducing bond purchases. Since June last year, bond purchases have been increasing at US$120 billion per month.
These bond purchases help keep long-term interest rates low.
The Fed stated in December that it would not start withdrawing support for the economy until it sees “substantial further progress” in achieving its employment maximization and inflation goals.
“Since then, the economy has made progress towards these goals,” the Fed said in its post-meeting statement on Wednesday. “If progress is generally as expected, the committee believes that the pace of asset purchases may slow down soon.”
The Fed also issued a quarterly forecast at the end of the policymaking meeting.
The so-called “dot plot” shows that policymakers are divided on where they think the federal funds rate will go next year. Half of the 18 members are now calling for keeping the benchmark interest rate unchanged in 2022, and half of them It is believed that interest rates will be raised by the end of 2022.
Policymakers lowered the median forecast for this year’s economic growth to 5.9%, but raised it to 3.8% in 2022. In June, they called for an economic growth of 7% this year, but only 3.3% next year.
The Fed also slightly adjusted its median forecast of the unemployment rate. It now expects this year’s unemployment rate to fall to 4.8%, compared with 4.5% in June. Its median forecast for next year’s unemployment rate remains unchanged at 3.8%. It still believes that the country’s unemployment rate will return to the pre-pandemic level of 3.5% in 2023.
The median inflation expectation this year is raised to 4.2%, and to 2.2% in 2022.
The Fed believes that the inflation rate will not fall to 2.1% until 2024.
Inflation and the job market
In August, the US economy added a disappointing 235,000 jobs—the slowest rate of job creation since January. The slowdown is mainly due to the surge in COVID-19 infections associated with the Delta variant of the coronavirus.
This is also happening in the context of record vacancies in the United States. On the last day of July, about 10.9 million jobs in the United States were begging.
The Fed’s target inflation rate is 2%. This goal has proven difficult to achieve this year, because prices have been rising as companies expand operations, cause labor and raw material bottlenecks, and increase transportation costs.
Some observers worry that prices may start to get out of control, forcing the Fed to raise interest rates and derailing the country’s economic recovery.
But Fed Chairman Jerome Powell has always insisted that he and his colleagues in policy makers believe that this period of high inflation will prove to be short-lived and that prices will eventually slow down.
The Fed’s post-meeting statement on Wednesday reiterated this position, which stated that “increased inflation mainly reflects temporary factors”.
In July, the Fed’s preferred inflation indicator, the personal consumption expenditure index, slowed to 0.4% from 0.5% in the previous month.
[ad_2]
Source link