Fed sees a long road to tightening as economy still falls short of targets


Fed sees a long road to tightening as economy still falls short of targets

By Yasin Ebrahim

GossipMantri.com – Federal Reserve policymakers believe it will likely take “some time” until the economy generates substantial growth that would allow the central bank to consider tightening monetary policy, according to the minutes of the last central bank policy meeting released on Wednesday.

Following its previous meeting on January 27, the Federal Open Market Committee, the Fed’s rate-setting body, kept its benchmark rate within a range of bond and bond purchases at one point. monthly rate of 120 billion dollars.

“The Committee’s guidance on asset purchases indicated that asset purchases would continue at least at the current rate until further substantial progress towards its employment and inflation targets was made. . With the economy still a long way from these targets, participants felt it was likely to take some time for substantial progress to be made, ”the Fed said in the minutes.

The Fed’s willingness to persist in the status quo of a longer-term lower interest rate environment comes as the 10-2-year Treasury spreads curve, a gauge of the health of the economy, has widened to levels not seen since April 2017, on expectations of a faster recovery and accelerating inflation.

Federal Reserve officials seem less worried, however, and believe any spikes in inflation will be short-lived.

“Many participants stressed the importance of distinguishing between these one-off changes in relative prices and changes in the underlying trend of inflation, noting that changes in relative prices could temporarily increase measured inflation but that ‘They would be unlikely to have a lasting effect,’ the Fed said as minutes showed.

10-year inflation “break-even points”, a key measure of inflation expectations, estimate average annual inflation of around 2.2%, while the PCE index, the Fed’s preferred measure of inflation , was 1.3% in December.

Powell reiterated earlier this month that inflation would be allowed to exceed its 2% target, and insisted there would likely be a “spending explosion” when the economy reopened, resulting in some pressure on prices, soaring inflation was unlikely.

“As the March reading through April of last year rolls out of the 12 month window, we will likely see an increase of [inflation] “Powell said.” We can also see, as the economy reopens, a spending explosion because there are a lot of savings on people’s balance sheets. ”, Causing some pressure on prices.


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