Fed keep interest rates unchanged and says inflation will remain elevated
Federal Reserve Chair Jerome Powell explains the U.S. economic outlook.
Today, the Federal Open Market Committee kept interest rates near zero and maintained our current pace of asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet will ensure that monetary policy will continue to support the economy until the recovery is complete. Progress on vaccinations and unprecedented fiscal policy actions are also providing strong support to the recovery indicators of economic activity and employment have continued to strengthen Real GDP rose at a robust 6.4% pace in the first half of the year and growth is widely expected to continue at a strong pace in the second half, partly reflecting the effects of the virus and supply constraints forecasts from FOMC. Participants for economic growth this year have been revised somewhat lower since our june summary of economic projections, but participants still foresee rapid growth as with overall economic activity conditions in the labor market have continued to improve Demand for labor is very strong and job gains averaged 750,000 per month over the past three months. In august however, job gains slowed markedly with a slowdown, concentrated in sectors most sensitive to the pandemic, including leisure and hospitality. The unemployment rate was 5.2% in August and this figure understates the shortfall unemployment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year factors related to the pandemic such as caregiving needs and ongoing fears of the virus appear to be weighing on employment growth. These factors should diminish with progress on containing the virus leading to more rapid gains in employment inflation is elevated and will likely remain so in coming months before moderating as the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly because supply bottlenecks in some sectors have limited how quickly production can respond in the near term. These bottleneck effects have been larger and longer lasting than anticipated, leading to upward revisions to participants inflation projections for this year. While these supply effects are prominent for now, they will abate and as they do, inflation is expected to drop back toward our longer run goal. The median inflation projections from FOMC participants falls from 4.2% this year to 2.2% next year. The test for beginning our taper is that we've achieved substantial further progress toward our goals of inflation and maximum employment. And for inflation, we appear to have achieved more than significant progress substantial further progress so that that part of the test is achieved in my view and in the view of many others. So the question is really on the maximum employment test. So, if you look at a good number of indicators, you will see that since last december when we articulated the test and the readings today, In many cases more than half of the distance, for example, between the unemployment rate unemployment rate in December of 2020 and typical estimates of the natural rate, 50 or 60% of that road has been traveled, so that could be substantial further progress. Many on the committee feel that the substantial further progress test for employment has been met. Others feel that close they want to see a little more progress. There's a range of perspectives, I guess my own view would be that the test a substantial further progress test for employment is all but met. And so once we've met those two tests, once the committee decides that they've met and that could come as soon as the next meeting, that's the purpose of that language is to put notice out that could come as soon as the next meeting, the committee will consider that test, and we'll also look at the broader environment at that time and make a decision whether to take her.