WASHINGTON—Despite growing inflation pressure, the Federal Open Market Committee ended its two-day meeting today leaving rates unchanged.
But due to progress in the economy, the Federal Reserve said it will begin tapering its purchases of securities and bonds.
In a statement, the Fed noted “progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer's rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”
The Fed reiterated the path of the economy continues to depend on the course of the virus.
“Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain,” the Fed said.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer‑term inflation expectations remain well anchored at 2%. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed continued.
The FOMC kept the target range for the federal funds rate at 0% to .25% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.
“In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities,” the Fed stated.
NAFCU Addresses Tapering
NAFCU Chief Economist and Vice President of Research Curt Long noted the Fed's tapering was expected.
"The $15-billion per month pace of tapering was also in line with expectations, and puts the Federal Reserve on track to wind down the process by June 2022," said Long. "Chairman Powell has said that the committee intends to complete tapering before raising rates, and markets have increasingly begun to look at June as a possibility for the next rate hike. However, the statement makes clear that the committee could alter the pace of tapering if economic conditions change. The prospect of a rate hike in mid-2022 is likely to be complicated by several factors. First, the FOMC committed to reach full employment prior to liftoff, and employment remains several million workers shy of pre-COVID levels. Second, although the recent spike in inflation has brought forward market expectations for the next rate increase, it is likely that supply chain disruptions will improve--if only marginally--over the first half of 2022, which could relieve price pressures. The committee is clearly divided on its view of the nature of these pressures. September's statement called them ‘transitory,’ while the current statement said they are ‘expected to be transitory.’ If inflationary pressures persist beyond the next month or two, a June date for a rate increase is likely."