D.he American central bank is sticking to its bond purchase program and leaving the key interest rate in the range between 0 and 0.25 percent. This was decided by the central bank governors in the two-day meeting of the Open Market Committee and announced on Wednesday. The wording in the official statement on the bond purchases, however, allows the interpretation that the central bankers want to examine in each of the next meetings whether the continuation of quantitative easing on the current scale is still justified in view of the brisk economic recovery in America.
On the basis of a decision made last December, the Federal Reserve is increasing its portfolio month by month with government bonds worth at least $ 80 billion and mortgage bonds worth at least $ 40 billion. Fed Chairman Jerome Powell highlighted the usefulness of the program in supporting the economy and supplying the financial markets in the press conference on Wednesday. One will examine session by session whether the prerequisites for the program are still in place and, above all, signal the financial markets early if the purchases should be throttled: “But we are not there!”, Emphasized Powell.
Powell sees inflation in cargo and travel
The Fed chief expects inflation to exceed the target of two percent in the next few months. The price increases were stronger than expected, he admitted. But that doesn’t change the Fed banker’s judgment that the effects are temporary. According to Powell, inflation stems from a handful of products such as cars and vacation travel, but it is by no means widespread. Long-term inflation expectations are still in line with the inflation target. The new monetary policy framework allows the Fed to tolerate inflation rates above two percent for a while without intervening, as long as the two percent mark seems secure in the long term.
Powell and his colleagues also want to stick to the loose monetary policy because they see great potential for improvement in the labor market. The last unemployment rate of 5.9 percent does not reflect the complete reality. Many have left the job market, at least temporarily. In addition to price stability, maximum employment is the Fed’s second goal. However, the Fed no longer mentions a specific indicator for this.