The Fed subtly changes its strategy

The Fed subtly changes its strategy

Facebook
Twitter
LinkedIn


The Fed has begun to avoid the extraordinary measures it has taken to help the United States respond to the coronavirus pandemic.For now, this does not include any major leap-at this week’s meeting, it did not change the policy interest rate, nor did it “shrink” the pace of asset purchases through the quantitative easing program-but to change the central bank’s approach Convey its intentThe Fed is right to act cautiously: there are still many uncertainties in the outlook.

Chairman Jay Powell pointed out at a press conference on Wednesday, After the meeting, The forecast of the U.S. economy is better than the Fed’s previous forecast. Vaccinations, policy support, and business resumption all mean that economic growth, employment, and inflation are higher than the central bank’s expectations. “We have good reasons to think that we will enter a labor market with very attractive numbers,” Powell said.

However, rising inflation is a concern for the central bank. The rate of price increases surprised the Policy Committee-the central bank was forced to raise its core inflation forecast to 3% this year. Core inflation will exclude fluctuating food and energy prices. At its March meeting, the Federal Reserve stated that the U.S. economy The “bottleneck” of the reopening is larger than expected, although it still expects these effects to be “temporary” and the core inflation rate in 2021 will drop to 2.1%.

However, this faster-than-expected inflation has led to a more hawkish tendency towards communications, despite a series of very mild policy backgrounds-the central bank kept the interest rate target at 0% to 0.25%, and the asset purchase rate was kept at 1,200 per month. One hundred million U.S. dollars. In the words of Chairman Jay Powell, investors should treat this meeting as “I guess they are talking about a reduction meeting.”It is enough that the central bank begins to consider signs of reducing asset purchases, and the central bank’s forecast of interest rates has also been updated to Increasing U.S. Treasury Bond Yields And dollars.

The Fed has handled this shift ingeniously. Investors and the central bank have largely converged-market-based inflation estimates have stabilized after rising at the beginning of the year, while expectations of interest rate hikes in 2022 have faded. The central bank has proven that under the new framework, it can respond to better-than-expected data and signal interest rate increases without destabilizing the market.

This will be crucial. There is considerable uncertainty in the prospects. As Jay Powell pointed out, although the labor market is recovering, the long-term impact of the pandemic is not yet fully understood. The unemployment rate may have been halved in the past year, but many American workers have completely withdrawn from the labor market. With the passage of time and supportive monetary policies, they may make a comeback. Or, more worryingly, the “full employment” pursued by the Fed may have come much closer than it imagined, and maintaining accommodative policies will only fuel inflationary pressures.

Other cost pressures may also be far less short-lived than the Fed currently expects. Timber prices may have fallen From the peaks reached earlier this year with the support of the construction and DIY boom, they are still rising compared to the normal post-financial crisis. At the same time, commodity traders predict that Oil prices may reach $100 per barrel. Powell has demonstrated his fancy footwork ability. This is encouraging: he will most likely need it again.



Source link

More to explorer

Understanding Key Factors in Accidents

Pedestrian Safety Statistics Pedestrian safety is an urgent concern worldwide, with over 1.3 million people dying in traffic accidents annually. Pedestrians account