Wednesday June 16, 2021
Inflation forecast raised
Fed promises earlier rate hike
The US Federal Reserve is still not touching the most important interest rates. The goal of full employment is too far away. The monetary authorities continue to regard rising inflation as a temporary phenomenon. Nevertheless, some of the decisions taken at the latest meeting are based on the economic recovery.
The US Federal Reserve is sticking to low interest rates despite the waning corona pandemic and rapidly rising inflation. She left him in the zero to 0.25 percent range at her session. However, for the first time since the beginning of the crisis, the monetary authorities signaled that there could be an increase in 2023. So far, on average, they had only targeted a turnaround in interest rates a year later. They intend to maintain their monthly injections of $ 120 billion until substantial progress is made in terms of price stability and employment.
At the same time, the central bank raised its inflation forecast for the current year significantly to 3.4 percent. In March, the Fed had assumed 2.4 percent. However, the central bank tried to counter concerns about inflation that might be too high. The current increase is due to “temporary” factors, the Fed said with a view to the economic recovery from the consequences of the corona pandemic.
The central bank had lowered the key interest rate in March 2020 to the still valid level and is pumping 120 billion dollars a month into the markets through bond purchases. The effects of the devastating economic crisis as a result of the corona pandemic could thus be dampened.
However, given the loose monetary policy, fears of high inflation are growing in the wake of the economic recovery. In May the price increase was five percent, the highest value in 13 years. However, in spring 2020 prices had plummeted in many sectors due to the pandemic, which partly explains the current high inflation figures. The US government speaks of a temporary phenomenon.
The Fed also does not want to give up its support for the economy too early – also because of the still high unemployment. The unemployment rate fell to 5.8 percent in May; But that is still well above the value of 3.5 percent before the pandemic. Compared to the pre-pandemic period, the US is still missing around 7.6 million jobs.
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