Rates close zero, economy even better with pandemic concerns

The Federal Reserve on He maintained his target interest on Wednesday rate near zero and said the economy continue to progress despite the concerns over the spread of the pandemic.

As expected, the Federal Open Market Committee concluded its two-day meeting by holding interest rates in a target range near zero.

Long with which, the committee reiterated its view that the economy continue to “strengthen”.

Despite his optimism for the economy, President Jerome Powell said the Fed is nowhere near considering a rate excursion.

“Our approach here has been to be as transparent as possible. We have not achieved substantial results progress yet, “he said.” We look forward to having some ground to cover to get there.

The FOMC statement noted that “progress” was made towards the Fed’s goals on employment and inflation, a hint that changes to policy, in particular as far as monthly bond purchases are concerned, it could be on the way.

“The sectors most affected by the pandemic have shown improvement but they have not fully recovered “the post- meeting statement said. “Inflation has risen, reflecting in mostly transient factors. All in all financial conditions remain accommodating, in reflective part policy measures for support the economy and flow of credit to US households and businesses “.

The shares moved little on the news, with still higher averages in negative territory.

Powell noted the rising threat posed by the pandemic and its delta variant, but said he did not see it having a major economic impact.

“What we have seen is with successive waves of Covid over the past year and for some months it tends to be less in the way of economic implications from each wave, “Powell told his post-meeting news lecture .. “We’ll see if this is the case with the delta variety.”

In a separate move, the Fed said it would establish two permanent repo structures, one for domestic markets and the other for foreigner and international authority. The structures allow high quality collateral exchange institutions, mainly Treasuries in the case of the domestic offer, for reserves.

With the Fed probably on hold against interest rates at least until the end of 2022, investors have been looking for for clues as to when the monthly bond purchases might be start be pulled back.

The central bank currently it is buying at least $ 120 billion a month in bonds, with at least 80 billion dollars go to the Treasury and another 40 billion dollars floor on mortgage-backed securities. Critics say Fed mortgage purchases are helping fuel another housing bubble. with prices a record levels even as sales have declined off in amid the tightening of the offer.

Some Fed officials said they would be willing to entertain cutting back on mortgages first. President Jerome Powell, however, has said several times that mortgage purchases are having only a minimum effect on accommodation.

On the widest economy, the Fed kept its foot on the accelerator despite some of the fastest post-Second World War growth the United States has ever seen. According to-quarter The GDP numbers are out Thursday, with the Dow Jones estimate at 8.4% annualized growth for the period from April to June. It would be the fastest pace since the beginning of 1983, not to mention last year is oversized Q3 growth as the economy reopened since the close of the pandemic.

The Fed has faced growing fears of inflation, with consumer prices that run to them highest from just before financial crisis of 2008. However, officials insist on current the increase is temporary and will subside once the supply chain bottlenecks have eased, demand it returns to normal levels, of course items, especially used car prices, also obtain back to the baseline.

Heading towards this week’s meeting, the markets were fixing prices in zero chance of any rate increase this year. However, the probability of an increase in 2022 went from 54.4% before the meeting to 62% after, with full price futures in the first increase by March 2023, according to the FedWatch tool from CME and Reuters.

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