The Fed is currently facing twin inflation, creating growth risks as the virus surges and the supply chain declines.

The Federal Reserve Building on Constitution Avenue was filmed March 19, 2019 in Washington, USA.Reuters / Rear Millis / File Photos

Washington / San Francisco, July 26 (Reuters)-Federal Reserve Board of Governors splits on how to deal with soaring prices faces rising coronavirus infections and new complications in the global supply chain this week And instead of solving the problem, it may lead to more inflation-inducing problems.

The Federal Reserve Board may confirm that both a strong US recovery and a final policy shift plan are underway after the two-day meeting. But the new risks that threaten the two illnesses of slowing growth and rising prices mean that the rosy future seen in June does not seem to be well-guaranteed.

Discussions on how to shape post-pandemic monetary policy have only just begun, and no decision was expected until the fall.

But what seemed to be the blue sky setting of the debate since the Fed met just six weeks ago is a more contagious delta variant to levels approaching the levels seen in last summer’s virus surge. It was clouded by four times the daily infections guided by.

Even if the worst of new outbreaks are concentrated in low-vaccination communities, economists believe it can change consumer spending and travel motivation, and the Fed believes in recovery. It states that it is necessary to balance maintaining and taking an explicit attitude in stock of things that may not work.

So far, that’s the only risk to growth. Data on air travel and restaurant visits show that consumers are still in recovery mode and are not depressed.

The new policy statement will be issued Wednesday at 2:00 pm GMT, followed by a press conference by Federal Reserve Board Chairman Jerome Powell.

“In the last 18 months, viruses have been seen many times as the number one determinant of economic activity,” said Karen Dynan, a professor of economics at Harvard University and former assistant US finance minister. “I think we will continue to move forward, but that progress will be slower than it would otherwise be.”

Goldman Sachs economist David Mericle said that despite new uncertainties about the recovery, inflation was higher than expected in June, but progress since the last meeting was “accommodation We have strengthened cases against early withdrawal. “

The Federal Reserve Board continues to buy $ 120 billion in government bonds each month, keeping its policy rate near zero. This is a measure implemented in the spring of 2020 to support the economy from a pandemic. Some Fed officials have already felt that it is time to shift away from these policies due to the recent unexpected pace of price increases, and bond market transactions in recent weeks have threatened the Fed. Investors have indicated that the exit from the program may need to be accelerated.

Supply problem “I don’t go anywhere”

Still, in fact, it is a long list of new issues that have arisen since June 16 when the Fed has expressed conviction that the pandemic is fading: “Progress in vaccination continues to reduce the impact of the public health crisis on the economy. Probability is high. “”

An increase in infection, if it persists, can put pressure on recovery, especially at dilute moments.

The Federal Reserve Board still hopes that the economy can regain all of the 6.8 million jobs lost since the outbreak of the pandemic, but that’s another aspect of the pace of recovery, especially public schools in the fall. Depends on whether or not it will restart completely. This is expected to help free parents return to work, but if the health crisis worsens again, the process can go backwards.

Meanwhile, recovery and employment slowdowns occur during the expiration of federal spending and benefits that maintained personal income last year. The “fiscal cliff” is already expected to slow annual economic growth from the current high octane pace of about seven. %.

Rising inflation has been the immediate focus of the Federal Reserve Board of Governors in recent weeks, and splitting central banks between these worrisome prices could be growing too rapidly, monetary. People who argue that the economy will grow before policy changes and that it will take much more time to regain unemployment.

Powell was full of questions about its politically sensitive subject at a recent hearing at Capitol Hill. The issue has also been closely watched at the White House, with both Fed executives and the Biden administration saying they are confident that the current price hike is primarily the result of a complex economic resumption and will ease itself. ..

There may be new reasons to doubt. Clashes of events, including floods in Germany and China, have re-blocked the flow of parts and materials around the world, Prolong supply bottlenecks The Federal Reserve Board of Governors and the White House expect a resolution to help ease price pressures.

“Supply-side problems obviously go nowhere,” a city economist said on Friday. “Costs from inputs and supplier wait times can continue to appear in consumer inflation over the next few months.”

Was inflation too high due to the relatively simple and somewhat archaic dilemma of June? -The Fed is currently “risking in two directions,” said William English, a former Fed director of monetary policy and Yale School of Management.

“Things can go wrong in ways they didn’t expect,” the English said.

Report by Howard Schneider and Anne Safir.Edited by Dan Burns and Andrea Rich

Our criteria: Thomson Reuters Trust Principles.

The Fed is currently facing twin inflation, creating growth risks as the virus surges and the supply chain declines.

Source link The Fed is currently facing twin inflation, creating growth risks as the virus surges and the supply chain declines.

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