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Fed keeps key rate close to zero, sees inflation as ‘transient’

WASHINGTON (AP) – The Federal Reserve maintains its extremely low interest rate policy, which indicates that it wants more evidence of a stronger economic recovery before considering easing its support.

In a statement on Wednesday, the Fed said it had a brighter outlook, saying the parallel labor market economy had improved. And while policymakers have noted that inflation has risen, they have attributed it to temporary factors.

The FRS also voiced the belief that the threat of an epidemic to the economy has diminished, which is a strong point given the ome Jerome Powell long-held view that recovery depends on keeping the virus under control. Last month, the Fed warned that the virus “posed significant risks to the economic outlook.” It was only said on Wednesday that “the risks of economic prospects remain due to the epidemic.”

The central bank left its benchmark short-term interest rate at zero, where the epidemic erupted about a year ago, to help maintain interest rates by encouraging borrowing and spending. In a statement after its last political meeting, it said it would continue to buy $ 120 billion worth of bonds each month to try to keep interest rates on long-term loans low.

And at the press conference, Powell made it clear that the Fed is not in a hurry to reverse the pace of bond buying. Policy makers, Powell stressed, first want to see evidence of a sustained significant improvement in the overall labor market.

The US economy has seen unexpected gains in recent weeks, with rising employment, spending and production barometers. Most economists say they are discovering the early stages of a strong, sustained recovery. Reducing the number of coronavirus cases, increasing the number of vaccines և American spending savings.

In March, employers added nearly 1 million jobs, an unprecedented figure before the epidemic. Consumer confidence soared to a record high in April when the epidemic flattened the economy in March last year.

The pace of growth, along with the additional large spending packages proposed by President Biden, has led some analysts to fear that long-term stagnant inflation could rise at an awkward pace. Raw materials and parts, from wood to copper and semiconductors, have risen in price as demand has exceeded the ability of suppliers to maintain stability.

Some companies have recently announced plans to raise prices to offset the cost of more expensive supplies. These include consumer giants Procter & Gamble և 3M, as well as Honeywell, which manufactures industrial և consumer goods. Powell said he expected supply disruptions to lead to a temporary rise in prices rather than a period of accelerating 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. Powell այլ Other Fed officials have made it clear that they want to see how inflation actually exceeds their 2% annual inflation target, not just briefly as they discuss raising interest rates.

They aim to keep inflation at an average of 2% over time, offsetting the fact that it has remained below 2% for the past 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.

One of the reasons Powell said he thinks inflationary pressures in the US economy will temporarily fall is that so far most Americans do not expect prices to rise much in the long run.

At a news conference, Powell was asked how the Fed would react if inflation expectations were to rise until the economy had reached a full estimate.

“In order for inflation to rise with persistent expectations, which will raise inflation expectations,” the president said, “it will take some time. Do you think it is very likely that we would be in a very strong labor market for that to happen?” »

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.

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.

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