Tue, 28 Sep 2021

The US economy is showing signs of progress in its recovery, but not enough to end the easy money policies implemented last year, the Federal Reserve said on Wednesday.

Widespread vaccinations have helped boost business activity and employment, though the sectors hardest hit by the Covid-19 pandemic "have shown improvement but have not fully recovered," the Fed's policy-setting Federal Open Market Committee (FOMC) announced following its two-day meeting.

The central bank cautioned that "risks to the economic outlook remain" and said it will monitor the economy's progress before pulling back on its bond buying programme.

Noting its goal of returning to full employment and inflation above two percent over the longer term, "The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved," the statement said.

The FOMC offered no further hint on when it might pare back its bond buying, although Fed Chair Jerome Powell will have a chance to address the issue in his press conference starting at 1830 GMT.

He has pledged to give advance warning before making any changes to the asset purchases.

The US central bank cut its benchmark lending rate to zero at the start of the pandemic and implemented a massive bond-buying program to provide liquidity to the economy.

The Fed currently is buying at least $80 billion per-month in Treasury debt and at least $40 billion in agency mortgage-backed securities.

An uncertain time

Central bankers met during an uncertain moment for the world's largest economy. The fast-spreading Delta variant of Covid-19 has prompted some parts of the United States to reimpose mask-wearing rules and sparked worries it could undermine the recovery.

But as businesses have reopened amid the widespread availability of Covid-19 vaccines, inflation has surged, with the annual consumer price index (CPI) hitting 5.4% in June, the highest since August 2008.

Central bankers have acknowledged their surprise at the size of the inflation jump but the statement again attributed the spike mostly to "transitory factors."

In testimony earlier this month, Powell said there is not a pressing need to shift the bank's policy, as the world's largest economy still has "a long way to go" to return to full employment following the Covid-19 pandemic.

The Fed has said it is willing to allow inflation to exceed its two-percent target for some time to allow the economy to return to full employment in the wake of the Covid-19 damage.

Many private economists agree with the central bank's assessment that the price burst is temporary and likely peaked in June, but that has not softened the scrutiny of the Fed.

Powell has previously said the price spike was driven by a "perfect storm" of high demand and low supply and pointed to issues including a global semiconductor shortage that has hindered auto production - factors that should dissipate as the bottlenecks unwind.

Source: News24

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