Washington, (Asian independent) The US Federal Reserve has kept its benchmark interest rate unchanged at the record-low level of near zero, as inflation debate heats up, driven by Covid-19 vaccination progress and the latest relief package.
“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the Fed said in a statement after concluding its two-day policy meeting on Wednesday.
Noting that inflation continues to run below 2 per cent, the Federal Open Market Committee (FOMC), the central bank’s policy-making body, reaffirmed that it will aim to achieve inflation moderately above 2 per cent for some time so that inflation averages 2 per cent over time and longer-term inflation expectations remain well anchored at 2 per cent.
The Fed also said it will continue an asset purchase program, and buys at least $120 billion of bonds a month, increasing its holdings of Treasury securities by at least $80 billion and of agency mortgage-backed securities by at least $40 billion.
“These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” Fed Chairman Jerome Powell said at a virtual press conference on Wednesday afternoon.
Since January, the numbers of new Covid-19 cases, hospitalisations, and deaths have fallen, and ongoing vaccinations “offer hope for a return to more normal conditions later this year”, he said.
The Fed chair, however, noted that the economic recovery remains “uneven and far from complete”, and the path ahead remains “uncertain”.
In the labor market, for example, conditions “have turned up” recently, but employment is still 9.5 million below its pre-pandemic level, he noted, adding that unemployment rate remains elevated at 6.2 per cent in February.
Fed officials expect the US economy to grow by 6.5 per cent this year, better than the previous projection of 4.2 per cent in December 2020.
The newly passed $1.9 trillion relief package, the first legislative victory for President Joe Biden, went into effect over the weekend, with some Americans already receiving $1,400 direct payments.
The massive relief package, which is expected to help fight the pandemic and bolster the ravaged economy, could also lead to an overheated economy, inflationary pressures and rising interest rates, economists have warned.
The Fed chair noted that fiscal support has helped avoid scarring and support economic recovery, but what it takes more to boost productive capacity or to raise living standards over time.
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