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Federal Reserve Keeps Rates Unchanged but Cites ‘Progress’ Toward Its Goals

  • July 28, 2021

The Fed is weighing conflicting economic signals as it tries to plan — and communicate — its next steps. The United States economy is roaring back after lockdowns last year and early this year, with strong consumer spending supported by repeated government stimulus checks. Inflation is taking off as economic activity rebounds from weak 2020 levels and as surging demand for washing machines, electronics, cars and housing outstrips what producers can supply.

Consumer prices picked up by 5.4 percent in June from the prior year, the quickest pace since 2008. The Fed’s preferred inflation gauge has been slightly more muted, at 3.9 percent in May, but that, too, is well above the central bank’s 2 percent average inflation goal.

“Inflation has increased notably” Mr. Powell said at the news conference, adding that it will likely remain elevated in coming months before moderating. But the Fed chair said that as supply bottlenecks abate, “inflation is expected to drop back toward our longer-run goal.”

He noted that inflation could turn out to be higher and more persistent than Fed officials expect, but for now inflation expectations — which are important to guiding actual price gains — seem consistent with the Fed’s goal, which is to average 2 percent annual inflation over time.

Officials expect the pop in prices to calm down as the economy gets back to normal. For now, they are more worried about a different set of risks: About 6.8 million jobs are still missing compared with February 2020 levels. Workers are taking time to sort back into suitable employment, and the central bank wants to make sure the economic recovery is robust as they try to do that.

Even when the Fed begins to dial back bond-buying, interest rates are likely to remain low. Long-running economic forces have pushed them naturally lower, and the central bank is expected to keep its main policy rate — the federal funds rate — at rock-bottom, where it has been since March 2020.

Officials have previously signaled that, barring a sustained burst in inflation or financial stability risks, they would like to leave interest rates near zero until the job market has returned to full employment. Their latest economic projections, released in June, suggested that most officials do not expect the economy to meet that high bar until 2023.

Article source: https://www.nytimes.com/2021/07/28/business/economy/fomc-fed-meeting-rates-taper.html

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