US Fed pending – for now – but price rising

Washington: The Federal Reserve is not expected to announce any changes when it closes its two-day policy meeting on Wednesday, but can provide assurance that it is watching rising prices. U.S. central bankers have made it clear that they will not change monetary policy until they see lasting signs that employment and inflation have recovered from the unprecedented economic damage caused by the Covid-19 pandemic. But the time may come faster than previously expected, amid the rapid reopening of the world’s largest economy, fueled by widespread vaccinations and large amounts of government aid. The Fed lowered the standard lending rate to zero in March 2020 and bought $ 120 billion a month in bonds to provide liquidity to support the economy. But rising prices have sparked concern THAT policymakers will have to pull back on the stimulus sooner or faster than expected, which could then slow down the economic downturn, which could hurt President Joe Biden’s policy agenda. Unemployment fell but remained at 5.8 per cent in May, while consumer and producer prices rose to 5.0 and 6.6 per cent respectively. Fed Chairman Jerome Powell slammed the message that price increases are largely temporary and at his press conference he is likely to repeat the stance, even emphasizing that the central bank is vigilant and will act if necessary to curb inflation. . But some economists and analysts have sounded the alarm. “If the Fed’s monetary policy is truly dependent on data, as the Fed says it is, it will acknowledge that the risks of a sustained rise in inflation have increased and that the prudent path of policy would be to announce that it will start tapping assets, says Mickey Levy of Berenberg Capital Markets.

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New predictions

Members of the Fed’s policy-making Federal Open Market Committee (FOMC) will present updated economic forecasts, which are expected to reflect rising inflation and stronger growth, and anticipate the date of the first expected rise in the key interest rate, possibly as soon as 2023. The first step is a decline in the massive bond-buying program, and Powell may indicate that officials will soon at least start talking about the right timing, although most expect the actual plan to appear in August. Krishna Guha of Evercore ISI said the Fed’s plan works and that markets mostly accept that many of the rising prices are temporary to give them time to respond. “Patience, however, is not immobility,” Guha said in an analysis. The FOMC ‘wants to move methodically’ and is now starting taper talks for changes implemented at the end of the year or early 2022. This “gives the FOMC the option to accelerate the timeline if necessary to ensure inflation expectations against successive surprises.”