US Fed Says Strength Of American Economy Continues Despite Delta

According to the US Federal Reserve, the US economy is still growing, although at a slower pace due to the Delta version of Covid.

The central bank stated that the labour market was strengthening and that the present high rates of inflation were just temporary.

It stated that it may begin lowering its emergency economic assistance “soon,” but did not specify when.

Half of its officials also predicted that interest rates will need to increase from their present record lows by 2022.

The US economy has recovered impressively from its epidemic lows this year, but there are concerns that Delta may undermine the progress.

In August, the country added fewer employment than projected, as increasing infections reduced expenditure on travel, tourism, and hospitality.

Inflation, which measures the rate at which the cost of living rises over time, is at 5.3 percent, the highest level in over 13 years. It comes in the midst of growing consumer demand, rising energy prices, and supply chain constraints.

Despite this, the Federal Open Market Committee (FOMC), which controls US monetary policy, stated that overall economic activity indices “have continued to increase.”

“The sectors most adversely affected by the pandemic have improved in recent months, but the rise in Covid-19 cases has slowed their recovery,” it said.

“Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses.”

The FOMC stated that the economy’s direction was still dependent on “the course of the virus.” It also intends to maintain monetary policy loose until greater progress is made toward stabilising unemployment (5.2 percent) and consumer prices.

However, if development continues “broadly as expected,” it may soon reduce its $120 billion per month bond-buying programme, which has kept borrowing rates low.

Analysts said the bank was taking a cautious approach, noting that no official deadline for withdrawing funding had been set.

“While the Federal Reserve has laid the groundwork for an eventual taper [of asset purchases] later this year, the Fed erred on the side of caution given that the macroeconomic landscape has deteriorated somewhat over the last few months,” said Candice Bangsund, a portfolio manager at Fiera Capital.

“Preconditions for a formal taper announcement will largely depend on economic conditions over the coming months, with an emphasis on data dependence.”

According to Gurpreet Gill, a macro strategist at Goldman Sachs, Fed committee members are remain concerned about continued supply chain disruption, the spread of Delta, and rising inflation.

“Given uncertainty around the health of labour market and inflationary pressures, we would not be surprised if the ‘dot plot’ changes again in the coming months as the pace of the recovery and underlying inflation dynamics become clearer.”

The Fed has two objectives. It seeks to keep US inflation at 2% and to achieve maximum employment, meaning that everyone who needs a job has one.

Throughout the epidemic, it has aided the economy by lowering interest rates to historic lows and pouring billions of dollars into the financial system by purchasing government and corporate bonds.

(Adapted from BBC.com)



Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability

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