Fed pledges to provide “strong support” to the US economy | Bank News

The U.S. Central Bank stated in its biannual monetary policy report submitted to Congress on Friday that it plans to maintain its low interest rate policy until further progress is made in the recovery from the COVID-19 recession.

The Federal Reserve said that as the economy recovers from the coronavirus pandemic, its low interest rate policy is providing “strong support” to the economy.

The Federal Reserve stated in its biannual monetary policy report to Congress on Friday that it plans to maintain this support until further progress is made in the recovery from last year’s severe recession.

The Federal Reserve stated that in the first half of this year, the progress made in coronavirus vaccination helped to reopen the economy and generate strong economic growth, but it said the lingering effects of the COVID-19 pandemic continued to weigh on the economy. Employment still exists far below the level before the pandemic.

The Federal Reserve kept its benchmark interest rate close to zero while continuing to purchase US$120 billion in Treasury bonds and mortgage-backed securities every month to put downward pressure on long-term interest rates. It said on Friday that these efforts will help ensure that “monetary policy continues to provide strong support to the economy until the recovery is complete.”

The new report will be the subject of a two-day hearing next week. Fed Chairman Jerome Powell will testify before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday.

Legislators will seek detailed information on when the central bank will start cutting bond purchases and when it will start raising interest rates.

Friday’s report repeated the language used by the central bank since last year, explaining that it is not expected to start raising interest rates until it reaches its employment maximization and inflation targets.

It also reiterated the Fed’s expectation that monthly bond purchases will remain at the level of $120 billion, “until substantial further progress is made in achieving its employment and inflation targets.”

The report said that so far this year, material shortages and recruitment difficulties have hindered activities and bottlenecks in many industries, and other temporary factors have also pushed up inflation.

The report stated: “As demand surges once again lead to production bottlenecks and recruitment difficulties, consumer price inflation has risen significantly this spring.”

But the report reiterated the view of Powell and other Fed officials that any spike in inflation could be temporary.

The report said: “As these special circumstances pass, supply and demand should be closer to equilibrium, and people generally expect inflation to fall.”

The minutes of discussions at the last meeting of the Fed in June showed that the central bank began to consider when and how to start reducing bond purchases, but has yet to come to any conclusions. Most private economists expect that the actual bond reduction will not begin until later this year, or may not begin until early 2022.