The Federal Reserve Bank is staying the course with no plans to raise interest rates or taper its buying of securities, Fed Chair Jerome Powell said in a press conference on July 28.
After deliberating for the last few days, the FOMC decided to keep interest rates at 0 percent–0.25 percent. The Fed expects to maintain this rate until labor market conditions have reached levels of “maximum employment,” Powell said.
The Fed will also continue its monthly purchases of $80 billion in Treasury securities and $40 billion in mortgage-backed securities.
“These measures along with our strong guidance on interest rates and on our balance sheet will insure that monetary policy will continue to support the economy until the recovery is complete,” Powell said.
The Fed’s goal is to reach 2 percent in unemployment and inflation.
Since March 2020 at the start of the COVID-19 pandemic in the U.S., the central bank has been buying $120 billion Treasury and mortgage-backed securities every month to help stimulate the economy. The goal is to reach a rate of 2 percent for unemployment and inflation.
“The Fed’s policy actions have been guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system,” Powell said on July 28. “We expect to maintain an accommodative stance of monetary policy until these employment and inflation outcomes are achieved.”
The U.S. economy is showing signs of recovery.
Powell said that the economy is showing signs of recovery with household spending up and the real GDP on track to post its fastest increase in decades.
Conditions in the labor department also continue to improve with employment rising by 850,000 jobs in June.
“Nonetheless, the labor market has a ways to go. The unemployment rate in June was 5.9 percent, and this figure understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year,” Powell said.
Powell said that joblessness falls disproportional on lower-wage workers in the service sector and African Americans and Hispanics.
Inflation could remain elevated.
Powell said the increased inflation would most likely remain elevated in the coming months, mainly due to continued bottlenecks in the supply chain for goods, hiring difficulties in the labor market, and other constraints.
“If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we’d be prepared to adjust the stance of policy,” he said.
COVID-19 vaccination levels impact the road to economic recovery.
Although the effects of the COVID-19 pandemic on the economy have diminished, risks to the economic outlook remain, Powell said. He pointed out concerns about a slower rate of Americans getting COVID-19 vaccinations while the Delta strain spreads in the country.
“Continued progress on vaccinations would support a return to more normal economic conditions,” Powell said.