The US Federal Reserve is likely to provide reassurances on Wednesday that it is closely monitoring price hikes, but is unlikely to announce any changes at the conclusion of its two-day monetary policy meeting.
A spokeswoman for the foundation said that the meeting, which began on Tuesday morning, “resumed (Wednesday) at nine in the morning (1300 GMT).”
A statement will be published at the end of it, at 2:00 pm (18:00 GMT).
Central Bank officials previously made it clear that they would not change monetary policy until there were evidence of a recovery in employment and inflation from the unprecedented economic damage caused by the Covid-19 pandemic, according to “France”.
But that may come sooner than previously expected, amid accelerating deregulation in the world’s largest economy, prompted by widespread vaccination and massive government support plans.
The Federal Reserve lowered the benchmark interest rate in March 2020 to range between zero and 0.25 percent, and decided to purchase $120 billion in bonds per month to provide liquidity to support the economy.
But the price hike has raised concerns that policy makers may roll back stimulus measures faster than expected, which could slow the economic recovery and hurt President Joe Biden’s program.
US Federal Reserve Chairman Jerome Powell has assessed that the price hikes are largely temporary, and is likely to reiterate this stance at his press conference while emphasizing that the institution is vigilant and will move to contain inflation if necessary.
But some economists and analysts are sounding the alarm bells.
Expert Mickey Levy of Berenberg Capital Markets estimates that “if the Fed’s monetary policy is really as data-driven as it claims, it will recognize that the risks of persistently rising inflation are present and that the rational course is to move toward announcing the start of a cut” of asset purchases.
– ‘Still off target’ – EverScore expert Krishna Guha says Powell is expected to stress that ‘the economy is still far from the Fed’s targets, and it will likely take some time to make further significant progress’. “.
Progress remains to be made, especially on the employment front. Central bank officials want the country back to full employment before changing their policy.
The unemployment rate fell to 5.8 percent, but it remains far from the previous rate of the crisis, which reached 3.5 percent, and there is still a difference of 7.6 million jobs compared to the same period.
More MPC members are likely to support starting an interest rate increase in 2023, but the majority still seem to prefer not to do so before 2024, according to Grant Thornton expert Diane Synk.
Syonic adds that “inflation and economic growth were stronger than expected.”
– New Forecasts – The Federal Reserve will provide an updated economic forecast, which is expected to reflect higher inflation and higher growth, and will provide the date of the first expected increase in the reference interest rate.
In March, the reserve had forecast GDP growth of 6.5 percent in 2021 and 3.3 percent in 2022.
He was also more optimistic about the unemployment rate compared to his previous forecast in December: 4.5 percent this year and 3.9 percent in 2022 to reach 3.5 percent in 2023, which is the pre-crisis rate, which was then at its lowest level in 50 years.
As for inflation, it is expected to reach 2.4 percent in 2021, before stabilizing around 2 percent in line with its long-term target.
The issue of reducing asset purchases was first addressed at the last meeting at the end of April, and some officials estimated at the time that it should begin soon.
Since then, the world’s largest economy has continued to recover. But inflation also accelerated, as expected, as it recorded the highest price rise in May in 13 years, an increase of 5 percent in one year, according to the Consumer Price Index (CPI).
That’s a big jump for sure, but it’s largely due to the impact of the comparison with prices that fell in the spring of 2020.
For its part, the Federal Reserve uses another measure of inflation, the Personal Consumption Expenditure Index (PCE), which in April witnessed its strongest acceleration since 2007, rising 3.6 percent in one year.