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The Federal Reserve promises “strong support” for the economy | Business

Washington (AP) — The Federal Reserve Board of Governors states that its low interest rate policy provides “strong support” to the economy as it recovers from the coronavirus pandemic.

In a biannual report to Congress on monetary policy released Friday, the Fed said it would continue to support it until the recovery from last year’s severe recession progressed further. It was.

The Fed pointed out that progress in vaccination helped to reopen the economy and led to strong economic growth earlier this year. However, the protracted effects of the pandemic still weigh heavily on the economy, with employment well below pre-pandemic levels.

Central banks continue to buy $ 120 billion a month in government bonds and mortgage-backed securities to put downward pressure on long-term interest rates, while keeping benchmark rates near zero. On Friday, he said these efforts would help ensure that “monetary policy will continue to provide strong support to the economy until the recovery is complete.”

The new report will be subject to a two-day hearing next week. Federal Reserve Board Chair Jerome Powell will testify in front of the House Financial Services Commission on Wednesday and in front of the Senate Banking Commission on Thursday.

Lawmakers ask for details on when central banks will start cutting bond purchases and when they will start raising interest rates.

The Friday report repeats the wording that the central bank has used since last year, explaining that it has no plans to start raising interest rates until the maximum employment and inflation targets are met.

He reiterated the Fed’s expectation that monthly bond purchases would remain at the $ 120 billion level “until substantial further progress is made” towards employment and inflation targets.

Material shortages and hiring difficulties have hampered activity in many industries, according to the report, and bottlenecks and other temporary factors to date this year have boosted inflation.

“Consumer price inflation rose especially this spring as the surge in demand again caused production bottlenecks and employment difficulties,” the report read.

However, the report reiterated the view of Powell and other Fed officials that the surge in inflation is likely to be temporary.

“After these extraordinary situations, supply and demand should be closer to balance and inflation is widely expected to fall,” the report said.

However, the Fed’s report also states that “upward risks to the inflation outlook are increasing in the short term,” increasing the likelihood that inflation surges will last longer than originally expected.

“The debate on inflation trends is likely to be temporary but more sustainable than originally expected, highlighting an ongoing inflation overshoot,” said Krishna Guha, an analyst at investment bank Evercore ISI. “.

Minutes Discussions at the Fed’s final meeting in June Central banking officials have begun to consider when and how to start cutting bond purchases, but have shown that they have come to a conclusion. Most private economists do not expect actual bond tapering to begin until the end of this year, or perhaps the beginning of 2022.

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The Federal Reserve promises “strong support” for the economy | Business

Source link The Federal Reserve promises “strong support” for the economy | Business

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