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US economy showing signs of improvement—Fed Reserve

Washington—The US economic recovery is showing signs of progress, but the Federal Reserve said Wednesday it is not yet ready to end the easy money policies it implemented as the pandemic began last year.

Widespread vaccinations have helped boost business activity and employment, though the sectors hardest hit by the COVID-19 pandemic “have shown improvement but have not fully recovered,” the Fed’s policy-setting Federal Open Market Committee (FOMC) announced following its two-day meeting.

The US central bank cut its benchmark lending rate to zero at the start of the COVID-19 pandemic and implemented a massive bond-buying program aimed at providing liquidity to help the world’s largest economy weather the damage.

The FOMC cautioned that “risks to the economic outlook remain” and again pledged to keep those policies in place until it sees “substantial further progress” on its maximum employment and inflation targets.

While the US economy has recovered millions of jobs and brought the unemployment rate down, it also has seen inflation surge.

Fed Chair Jerome Powell again tried to tamp down concerns about the price spikes he described as mostly temporary and limited to certain sectors.

“The process of reopening the economy is unprecedented, as was the shutdown at the onset of the pandemic,” Powell said.

Central bankers met during an uncertain moment for the world’s largest economy. The fast-spreading Delta variant of COVID-19 has prompted some parts of the United States to reimpose mask-wearing rules and sparked worries it could undermine the recovery.

Speaking to reporters after the policy meeting, Powell was alternately upbeat and cautious, but seemed untroubled by the impact of rising infections on the economy.

However he acknowledged that inflation has already risen well above the Fed’s two-percent goal—the annual consumer price index (CPI) hit 5.4 percent in June, the highest since August 2008—and recognized inflation could continue higher.

“As the reopening continues, other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect.”

Powell said the price increases are not widespread and largely the result supply bottlenecks such as the semiconductor shortage that has hit the auto industry.

“We think that some of it will fall away naturally as the process of reopening the economy moves through. It could take some time.”

Still, the central bank will be ready to act if needed to bring prices under control.

“If inflation expectations were to move up, we would use our tools to guide inflation back down to two percent,” Powell said. 

Topics: United States , economic recovery , Federal Reserve , Federal Open Market Committee , COVID-19 pandemic
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