Fed "US Economy Optimistic but Easing Policy Maintained for Now" (Comprehensive Report 2)

Base Interest Rate Held at Zero Level... Asset Purchases Continue
Powell: "Inflation Temporary... Policy Changes Will Take Considerable Time"

[Asia Economy New York=Special Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) has presented a more optimistic outlook on the U.S. economy but maintained its current monetary policy. Fed Chair Jerome Powell acknowledged that some assets are experiencing bubbles but dismissed concerns by calling inflation a "transitory phenomenon."

On the 28th (local time), following the Federal Open Market Committee (FOMC) regular meeting, the Fed announced in its statement that it would keep the benchmark interest rate unchanged at 0.00?0.25% and continue asset purchases at $120 billion per month.

The Fed stated in the statement that it is appropriate to maintain the current monetary policy until maximum employment is achieved and inflation moderately exceeds 2%.

Furthermore, it reiterated its stance that there will be no changes to monetary policy until clear signals emerge.

The Fed evaluated the economic situation somewhat positively. It said, "With progress in vaccine vaccinations and strong policy support, economic activity and employment indicators have strengthened," adding, "Although sectors most adversely affected by the pandemic remain weak, they are showing signs of improvement."

While the previous statement assessed the economy as facing "considerable risks," this time it removed the word "considerable" and referred simply to "risks."

However, it cautioned that "the path of the economy will be greatly influenced by the progress of the pandemic, including vaccinations," and that "the ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain."

In a post-FOMC press conference, Chair Powell said, "Some assets are priced high," and "We can see some bubbles in capital markets. That is a fact." However, he pointed out that this is unrelated to monetary policy and is correlated with vaccinations and economic reopening.

Regarding the recent acceleration in inflation, he emphasized it is "transitory." Powell also drew a line on tapering asset purchases, saying, "It is not the time to talk about it yet." He judged that it will take considerable time before progress sufficient to warrant policy changes is made.

This reaffirmed the Fed’s position that it has no plans to change its accommodative monetary policy for the time being, aiming to curb concerns about rising inflation in the U.S. caused by accelerated economic recovery due to expanded vaccinations.

When asked about concerns over hyperinflation similar to the 1970s, Powell said, "We have sufficient tools to handle inflation exceeding 2% for a prolonged period." He argued that the difference between the early 1970s hyperinflation and current inflation is the availability of management tools.

Powell characterized the current inflation as a transitory phenomenon caused by base effects and supply chain bottlenecks. He explained that inflation rose this year because inflation had plunged sharply due to COVID-19, which spread rapidly since March last year. He interpreted about 1 percentage point in March and 70% in April and May as due to base effects. Powell predicted that inflation would stabilize as the base effects disappear. He emphasized, "Bottlenecks are also temporary and will soon disappear, so they do not affect changes in monetary policy."

Investment banks unanimously gave positive evaluations of Chair Powell. JP Morgan viewed the removal of the word "considerable" as positive, indicating a reduction in economic risks.

Other investment banks focused on Powell’s remark that it will take considerable time, forecasting that discussions on tapering asset purchases will likely begin only by the end of this year.

Despite Powell’s remarks on the day, major indices on the New York Stock Exchange all declined, but the U.S. 10-year Treasury bond turned strong.

This content was produced with the assistance of AI translation services.