The US Federal Reserve reiterated on Wednesday that it is willing to tolerate higher levels of inflation as it strives to achieve the goal of bringing as many Americans back to work as possible, but it has increased its comfort level when it comes to how long it is willing to. Saw that speed went.
In a speech after the Fed’s recent two-day policy meeting, Chairman Jerome Powell urged patience and humility as the US economy continues to recover from last year’s COVID-19 lockdown.
Powell said: “This is a very unusual period. We really don’t have a template or any experience in this situation, so I think we must be humble about our ability to understand data.” “Now is not trying to focus on the labor market, inflation. When we come to a hard conclusion with the policy path, we need to look at more data and we need to be patient.”
The Federal Reserve, as the Central Bank of the United States, announced at the end of its fourth meeting in 2021 that its policy will remain basically unchanged, interest rates will remain close to zero, and the Fed’s bond purchases will continue to remain at US$120 billion per month. The 18 members of the Federal Open Market Committee voted unanimously to keep interest rates unchanged.
The big surprise of the meeting came from the latest economic forecasts of policymakers, which showed that personal consumption expenditures (PCE), the Fed’s preferred measure of inflation, will rise to 3.4% this year, a full percentage point higher than the 2.4% forecast in March.
The Fed’s latest forecast is that next year’s inflation rate will fall to 2.1%, compared with its March forecast of 2%. It also advances the projected timetable for interest rate hikes to 2023. In March, policymakers set 2024 as the earliest time to raise interest rates.
The Fed insisted in its post-meeting statement that the recent rise in inflation “to a large extent reflects temporary factors”, such as the economic recovery from the pandemic hibernation. Powell also reiterated this position in a post-meeting statement. .
“Inflation has been higher than expected in the past few months,” the Fed chairman said. “However, if you look at the content behind the headline numbers, you will find that the incoming data is consistent with the view that the prices that drive inflation up come from categories directly affected by the recovery and reopening of the pandemic. Economy.”
For example, Powell cited the recent increase in timber prices, Hinder the ability of home builders In order to use Americans to seek more space at home after a year, the demand for new houses increases. But Powell said that because these price increases are the result of shortages and bottlenecks, they should eventually start to decline.
Progress and risks
In a press release, the Fed cheered “progress” As the widespread vaccination campaign helped curb COVID-19 infections and deaths in the United States, coupled with “strong policy support”, economic activity and employment have been strengthened.
The Fed’s June forecast painted a more optimistic picture of growth and employment, and raised its March forecast for 2021 GDP growth by 0.5 percentage points to 7%. It also expects the unemployment rate to fall to 4.5% this year, to 3.8% next year, and then return to the pre-pandemic level of 3.5% in 2023.
The Fed said that although the hotel industry and other industries that have been hit hardest by restrictions aimed at curbing the spread of COVID-19 are still weak, they also “show improvement.”
But Powell warned that the country has not completely “out of the predicament.” Concerns about Americans’ hesitation about vaccines and the rapidly spreading COVID-19 strains, including Delta variants, remain.
“The path of the economy will largely depend on the course of the virus. Advances in vaccination may continue to reduce the impact of the public health crisis on the economy, but risks to the economic outlook remain,” the Federal Reserve statement said.
In order to mitigate these risks, the Fed expressed its willingness to tolerate inflation slightly higher than its 2% target interest rate for “a period of time” in order to maintain the long-term outlook at 2%.
Inflation has become a buzzword in the world’s largest economy, because the pent-up consumer demand of American consumers after spending a year in the country has encountered supply chain problems, battles for raw materials and rising producer prices.
When the Fed’s leaders sat down on the first day of Tuesday’s meeting, The latest data released this week It shows that as the reopening country struggles with supply chain bottlenecks and responds to rising raw material costs for factories, producer prices continue to rise.
Food and energy prices led the rise in the US government producer price index. Food prices rose 2.6% last month, and energy prices rose 2.2% after contracting in April.
According to data from the US Labor Office, higher producer prices translate into increased costs for wholesalers. They saw prices rose by 0.8% month-on-month in May and 6.6% in the past 12 months-the largest increase on record. (BLS).
These snowball costs subsequently translated into higher prices for consumers, which dealt a particularly severe blow to people with lower incomes because their wages were not as high as they used to be and their initial disposable income was also reduced.
The data shows that this has already happened: American consumer prices have risen Better than expected 0.6% In May, it rose again after rising 0.8% in April. Since consumer spending is responsible for two-thirds of US economic growth, the pain in the wallet has wider consequences.
The worry is that if prices rise out of control, the Fed will be forced to raise interest rates, which makes Borrowing money is more expensive And restrain economic growth.
But Powell assured Americans on Wednesday that the Fed will stick to its plan to keep interest rates close to zero until the labor market fully recovers.
Get the U.S. back to work
Americans are still spending money, albeit in different places. The U.S. Department of Commerce said on Tuesday that retail sales in May fell by 1.3% from the previous month, a larger-than-expected decline due to reduced spending by consumers in auto dealerships, furniture, electronics and home improvement stores.
On the contrary, as many areas in the United States further lift restrictions on gyms, restaurants, bars and hotels, the arrival of summer seems to be prompting Americans to spend more on personal care products and food and beverages.
But the ravaged hotel industry continues to struggle Attract workersAccording to BLS data, there was a net increase of 186,000 jobs in catering establishments in May, which is the fifth consecutive month of increase. However, the National Hotel Association found that staffing levels in May were still 12% lower than pre-pandemic levels.
Experts say that the shortage of personnel is caused by a variety of factors, from bottlenecks and the lack of childcare services for workers to people changing jobs.
Some people also attribute the $300 federal subsidy to state unemployment benefits, which they believe is an incentive to hinder people from going out to find work. Twenty-five states have announced plans to withdraw from the federal unemployment benefit program, which includes a subsidy of $300 a week. All these states are led by Republican governors.
However, Powell predicts that if the United States can persist in the recovery process, the labor market will be stronger than ever. He said that as children return to school, vaccination rates continue to increase, and some federal unemployment benefits expire, More Americans will return to work in the short term.
In the long run, Powell paints a more positive picture.
Powell said: “I think it’s obvious, I believe we are on the road to a very strong labor market-the labor market shows low unemployment, high participation and rising wages in all walks of life.” This is reflected in our forecast. It is shown in the external projection. If you look back at the current time frame and consider one or two years from now, we will see a very, very strong labor market.”