By Joseph Chalfant
On June 16, Chairman of the Federal Reserve Jerome Powell held a highly anticipated press conference following the board’s May meeting where he announced the Fed would continue to keep interest rates near zero.
Powell insisted that the country was continuing on an adequate path of economic recovery. In part of his opening statement, he informed listeners that current interest rates and asset purchases would be maintained for the foreseeable future.
While the Fed is maintaining its current footing on interest, rates could get a bump in two years. Powell projected that the suggested interest rate might climb to 0.6% by 2023.
A strong criticism for the economy has been the low job numbers posted in recent months. Powell attempted to ease fears and noted that an average of 419,000 jobs had been added each month during April and May. As the pandemic ends, a labor market boom may be on the horizon.
“Factors related to the pandemic, such as caregiving needs, ongoing fears of the virus, and unemployment insurance payments appear to be weighing on employment growth. These factors should wane in coming months against a backdrop of rising vaccinations, leading to more rapid gains in employment,” said Powell.
A growing concern for Americans is the impact of rising inflation. The Federal Bank Reserve of New York recently released its monthly survey and found that expected inflation rates are at an eight-year high.
While acknowledging that inflation is reversing and coming in line with the Fed’s goal of 2%, Powell substantiated some concerns that the problem may get worse before it gets better. He worries that supply-chain and employment issues could lead to higher-than-expected inflation rates.
“As the reopening continues, shifts in demand can be large and rapid, and bottlenecks, hiring difficulties, and 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,” said Powell
A key area of interest for consumers is the Federal Open Market Committee (FOMC) plans for asset policy as the economy opens up. The FOMC will maintain its current policy of $80 billion in treasury bonds and $40 billion in securities until it has achieved maximum employment and its inflation rate target of 2%.
Powell insisted that the FOMC would provide fair and ample warning to consumers before tapering, but he could not give a timeline for when that shift may begin due to a lack of data.
Powell closed by saying the Fed will continue to monitor inflation closely.