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Even as the economy warms, the Fed is sticking to near-zero rates

WASHINGTON (AP) – Rents are accelerating as Americans go shopping, eat in restaurants and travel, and inflationary pressures are rising even after years of sleeping. As early as this week, the Federal Reserve is confident of reiterating its commitment to extremely low interest rates.

At a news conference after the last Fed Policy Meeting on Wednesday, President ome Jerome Powell is likely to reiterate his view that the economy is far from fully recovering and needs continued central bank support in the form of low borrowing costs. There are still 8 million fewer jobs than there were before the epidemic. And the unemployment rate, 6%, was much lower than it was a year ago, but it remains high.

Powell stressed that further gains in the job market are needed to help many Americans, especially low-income workers of color, who have suffered disproportionately from job losses and have not yet benefited from recovery.

At the same time, this week the central bank may focus more on the importance of the Powell Fed’s approach to inflation. In the new framework adopted by the Fed last summer, it will no longer raise interest rates, predicting high inflation, which has been its policy for decades.

Instead, Powell այլ other Fed officials made it clear that they wanted to see inflation actually exceed their 2% annual inflation target, not just briefly as they discussed raising interest rates. Fed policymakers have said they would like inflation to stay above “2%” for some time without specifying how much it could last.

They aim to keep inflation at an average of 2% over time, to compensate for the fact that inflation has remained below 2% for almost the last decade. Federal policymakers prefer price gains at that level as a cushion against deflation. Prolonged wage prices, which usually make people and companies reluctant to spend.

Eliminating any fears of rising prices, Powell said he believed inflationary pressures currently emerging in the US economy would be temporary, in part in response to blocked supply chains that have created shortages of certain commodity components. That’s because Americans do not expect prices to rise much in the long run.

When inflation expectations rise, they can be met spontaneously. Employees start demanding higher wages to offset expected price gains, և retailers start raising prices to offset wages և supply costs. This could lead to a spike in wage prices, which the United States last experienced in the late 1960s and late 1970s.

In addition to inflation, the Fed’s new framework includes a comprehensive definition of maximum employment that includes the full recovery of jobs lost in the epidemic, including among people of color and low-income workers, before even considering raising interest rates. Powell also noted that the FD would like to see about 4 million Americans who have stopped looking for work after being fired over the past year be hired before it can monitor the pace of growth.

“We are in a historic moment,” said David Beckworth, a senior fellow at the George Mason University Mercatus Center. “This is very different from what the Fed has done before.”

Fed policymakers themselves are more optimistic about the recovery. Last month, they significantly updated their growth forecasts for inflation. They estimate that the economy will grow by 6.5% this year, up sharply from the previous forecast of 4.2% in December. And they raised their inflation forecast from 1.8% to 2.4% at the end of this year.

So far, the economic recovery has been faster than economists had predicted. In March, employers added nearly 1 million jobs, an almost unprecedented figure before the epidemic, with weekly unemployment benefits falling to its lowest level since the virus was infected.

In some industries, particularly restaurants and shops, which are more fully open for business, employers complain that they can not find enough employees to fill the available jobs. In response, some are raising salaries. Raw materials and parts, from wood to semiconductors, have risen sharply as demand for homes and cars, which are large consumers of semiconductor chips, has risen.

These trends have led some analysts to fear that inflation could rise faster than the Fed wants. Among them is Larry Summers, Secretary of the Treasury under President Barack Obama. Summers recently noted that the Fed’s traditional approach to economic growth and inflation has been to “take the punch before the party gets out of control,” according to a famous quote from former Fed Chairman William McChesney Martin.

“And what we’ve just said is we’re not going to do anything until we see a bunch of drunks walking around,” Summers said. “It seems to me that we are taking a huge risk.”

For now, however, most economists predict that inflation will remain largely under control. Prices are expected to rise in the coming months, but mainly for temporary reasons. Consumer prices fell a year ago when the epidemic began, so this spring prices will rise sharply from year to year, but maybe only for a while.

Supply bottlenecks are expected to be cleared as factories increase production. And as consumers curb spending, travel, lunch, entertainment, and other services in the coming months, they may cut back on products such as cars, electronics, and appliances, where prices have risen sharply.

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