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The Fed will maintain its monetary policy while the US economy recovers

The Federal Reserve (Fed) finally has what it wanted and anticipated: signs of an economic recovery in the United States that could repair some of the damage caused by the covid-19 pandemic.

However, by the time the central bank’s Monetary Policy Committee (FOMC) opens its two-day meeting on Tuesday, analysts are not expecting increases in interest rates or signs of an end to the money injection policies applied to help the country’s recovery, despite some fears of rising inflation.

“Nobody expects there to be any major changes in monetary policy in terms of rates or asset purchases by the Fed,” Andrew Hunter, chief US economist at Capital Economics, told AFP.

In fact, central bank officials have made it clear that they will not be swayed by temporary price rises to make abrupt changes or halt stimulus measures.

In recent weeks, the government has reported the first signs that COVID-19 vaccines are returning laid-off workers to their jobs and ending the suffering of companies, hard hit by closures aimed at curbing the contagion.

Data from the Labor Department showed that applications for unemployment benefits hit the lowest point since the start of the pandemic, while the economy regained 916,000 jobs in March, causing the unemployment rate to drop slightly.

Retail sales soared in March to 27.7% higher than the previous year’s rate, before the pandemic, while the Supply Management Institute’s service index hit an all-time high last month and sales of new homes reached the highest level in 15 years.

However, even with signs that hiring has picked up, more than 17 million people are still out of work and Fed Chairman Jerome Powell has warned that the economy will not reach the “maximum” level of employment this year.

“I expect the Fed to remain resolutely patient despite the US data turning towards stronger growth and faster job growth,” said Evercore ISI vice president Krishna Guha.

– More than a rescue –

The Federal Reserve acted swiftly when the Covid-19 pandemic began in the United States in March of last year, lowering its benchmark interest rate to zero and stepping up asset purchases to inject liquidity into the economy.

These measures, along with trillions of dollars in economic stimulus approved by Congress, have served to prevent the world’s largest economy from suffering a major recession.

But the central bank’s promise to keep rates low for longer has sparked fears that the Fed will let inflation get out of hand.

However, Powell and other officials have reiterated that while they expect inflation to pick up as the economy improves throughout this year, they do not expect the increase to be lasting.

They plan to delay the increase in lending policy until inflation exceeds 2.0% and remains at that level for some time – unspecified – and they foresee that this “takeoff” of rates will not occur until after 2023 .

This is a shift in the Fed’s approach, raising rates before price increases were visible in indices, and it comes after a decade in which inflation remained below the 2.0 target. %.

There have already been signs of expected increases, with the consumer price index rising 0.6% in March, its biggest monthly increase since 2012, putting it 2.6% higher than a year ago.

Hunter believes that rising prices “may end up being a bit more persistent than the Fed expects,” noting rising inflation expectations, as well as reports that companies are struggling to get workers back, which it could push wages higher.

cs / hs / me / yow

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