Jerome H. Powell, the Federal Reserve chair, is speaking with reporters on a webcast news conference after the central bank on Wednesday left interest rates at rock-bottom and pledged to continue buying government-backed bonds at a steady pace.
The economy is clearly improving from the coronavirus shock. Unemployment, which peaked at 14.8 percent last April, has since declined to 6 percent. Retail spending is coming in strong, supported by repeated government stimulus checks. Overall, Americans have amassed a big savings stockpile over months of stay-at-home orders, so there’s reason to expect that things could pick up further as the economy fully reopens.
Still, Fed officials have signaled they will continue measures to support the economy’s recovery from the coronavirus downturn until the recovery is further along.
When it comes to government-backed bond buying, a policy meant to make many kinds of borrowing cheap, the Fed has said it would like to see “substantial” further progress before dialing it back. The hurdle for raising rates is even higher: Officials want the economy to return to full employment, achieve 2 percent inflation, and expect inflation to remain higher for some time.
“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the policy-setting Federal Open Market Committee said in its post-meeting statement. “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.”
When Jerome H. Powell, the Federal Reserve chair, speaks to reporters in a webcast news conference on Wednesday afternoon, he’s likely to face questions about a simmering topic: inflation.
Prices are expected to pop in the coming months, both as inflation indexes lap very weak 2020 readings and as supply chains experience short-term reopening bottlenecks. The unknowns facing the Fed, and the investment world, are how big the jump will be and how long it will last.
Most forecasters and the Fed itself expect the increases to be only temporary. But some economists have warned that they could be significant enough to become a problem as businesses reopen, consumers start to spend their savings and the government pumps stimulus money into the economy.
If the increases are big enough and sustained, the Fed could find itself in a tough spot, forced to choose between letting prices rise or raising interest rates before the labor market is fully recovered.
Inflation also worries stock investors: If the Fed lifts interest rates to cool off the economy, it could make investing in bonds more attractive and corporate borrowing more expensive, both bad news for…
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