US Fed expects to hold on despite rising inflation

Washington: Even in the face of rising inflation, the lack of progress in job losses lost during the pandemic is likely to mean that the US Federal Reserve is unlikely to start monetary policy when it meets next week. The head of the central bank, Jerome Powell, has made it clear that the Fed will stay in line with its massive bond purchase program and outstanding interest rates until the data reflects lasting improvement in employment in all economic streets. But the recent rise in inflation in the world’s largest economy is increasing pressure on policymakers to start withdrawing from stimulus programs. Tips on whether the central bankers will fold can be seen next week when the Fed’s Federal Policy Committee on Public Markets (FOMC) holds its two-day policy meeting. “No good deed remains unpunished, and that is the case with the rapid reopening of the economy,” economist Joel Naroff said in an analysis. “The advantage is that growth is skyrocketing. The downside is that consumer inflation is rising and labor problems are putting businesses under pressure.”

Focus on work

With the widespread vaccinations in recent months and massive government assistance, the US economy bounced back because of the Covid-19 crisis when businesses wanted to reopen quickly. But the process was bumpy and other countries did not keep pace, resulting in a shortage of supplies and workers. This caused prices to rise again, while the consumer price index hit a 13-year high of five percent in May compared to the same month in 2020. While Fed officials have repeatedly given assurances that the increase is mostly due to temporary issues – the price of used cars alone accounts for most of the rise – some financial market players have begun to sound the alarm, as have Republicans which is opposed to President Joe Biden’s spending plans. . “We should all be very concerned,” Republican Senator Pat Toomey tweeted last week.

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“It is long overdue for the Fed to begin the process of normalizing its monetary policy.” Omari Swinton, chair of the Howard University Department of Economics, said businesses find it difficult to fill vacancies while reopening, or compete with the $ 1,000 signing bonus offered by major US employer Amazon, wage and price inflation is legal worries. But the ‘systemic’ issue of labor shortages is the main target of the Fed’s policy discussions, he said, especially as the labor pool shrinks permanently following the pandemic. “Nobody knows if people are going to work again or not,” Swinton told AFP. “So they focus on making sure that employment recovery is stronger than inflation.” This was Powell’s position: reducing the fear of inflation, while growing the importance of the economy fast enough for even low-wage workers to find work.

New predictions

While the official unemployment rate fell to 5.8 percent in May, unemployment for black Americans remains much higher at 9.1 percent, and more than seven million of the jobs lost during the pandemic have still not been restored. . “The recovery of the labor market since the end of last year has been solid, but it is far from being a comprehensive and comprehensive recovery,” said Kathy Bostjancic of Oxford Economics. Even if the Fed’s policy remains unchanged, Powell can reassure the world that the central bank will be vigilant about inflation, and he can indicate that they are ‘talking about’ the right time to delay the purchase of cash-pumped assets. . in the economy throughout the crisis. Many economists expect Powell to give clearer tips on the tap plans at an annual central banking conference in Jackson Hole, Wyoming, in August. During this meeting, the FOMC will also announce the latest quarterly forecasts of the 17 committee members, which are expected to reflect the improved economic outlook, and show a median forecast for one interest rate hike in 2023. In the last Summary of Economic Projections (SEP) in March, no increase in the standard loan rate was expected until 2023.