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Home Business Economy & Trade

US Fed expected to stand its ground despite inflation

AFPbyAFP
June 13, 2021, 7:40 pm
in Economy & Trade
Reading Time: 2 mins read
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WASHINGTON—Even in the face of rising inflation, the lackluster progress on restoring jobs lost during the pandemic means the US Federal Reserve is unlikely to budge on monetary policy when it meets next week.

Central bank chief Jerome Powell has made it clear the Fed will hold the line on its massive bond buying program and rock-bottom lending rates until data reflect lasting improvement in employment across all economic strata.

But the recent surge in inflation in the world’s largest economy is ramping up the pressure on policymakers to begin to pull back on stimulus programs.

Hints of whether central bankers will buckle may be seen next week when the Fed’s policy-setting Federal Open Markets Committee (FOMC) holds its two-day policy meeting.

“No good deed goes unpunished and that is the case with the rapid reopening of the economy,” economist Joel Naroff said in an analysis.

“The upside is that growth is soaring.  The downside is that consumer inflation is surging, and labor problems are pressuring businesses.”

With widespread vaccinations in recent months and massive government aid, the US economy has come roaring back from the COVID-19 crisis as businesses rushed to reopen.

But the process has been bumpy and other countries have not kept pace, creating a shortage of supplies and workers.  

That in turn has sent prices surging, with the consumer price index hitting a 13-year high of five percent in May compared to the same month in 2020.

While Fed officials have repeatedly offered reassurances that the increase is mostly due to temporary issues—used car prices alone make up the bulk of the rise—some financial market players have begun to sound the alarm, as have Republicans opposed to President Joe Biden’s spending plans.

“We should all be very concerned,” Republican Senator Pat Toomey tweeted last week.

“It’s long overdue for the Fed to begin the process of normalizing its monetary policy.”

Omari Swinton, chair of the Howard University economics department, said with businesses finding it hard to fill open positions as they reopen, or competing with the $1,000 signing bonus offered by major US employer Amazon, wage and price inflation are legitimate concerns.

But the “systemic” issue of the worker shortage is the more important target of the Fed’s policy deliberations, he said, especially if the labor pool shrinks permanently in the wake of the pandemic.

“No one knows if people are going to go back to work or not,” Swinton told AFP. “So their focus on making sure the employment recovery is strong is more important than inflation.”

That has been Powell’s stance: downplaying inflation fears while stressing the importance of allowing the economy to grow fast enough that even low wage workers can find jobs.

Tags: InflationJerome PowellMonetary policyUS Central bankUS Federal Reserve
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AFP

AFP

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