(Reuters) – The US Federal Reserve plans to maintain its super-simple policies, even as data shows the economy is picking up a gear, with policymakers predicting Thursday that an expected price hike will disappear on its own this year, and warning about the recent rise in COVID-19 infections.
“Things are going back up here, so I would insist that people get vaccinated and keep a social distance,” Fed Chairman Jerome Powell, who took his photos, said at an economic forum during virtual rallies of the International. Monetary Fund and the World Bank. “We don’t want to have another outbreak; even if it could have less economic damage and kill fewer people, it slows recovery. “
At a separate event, James Bullard, president of the Federal Reserve Bank of St. Louis, said the Fed should not even talk about changes in monetary policy until it is clear that the pandemic is over, thus tightening future discussions of the Fed. linked to the success of the vaccination effort.
The Fed has said it will continue to buy $ 120 billion in bonds every month until it sees “substantial further progress” to meet the central bank’s employment and inflation targets.
Bullard said he thinks that depends on beating the coronavirus. “We must first see the pandemic behind us,” he said. “There are still risks, and things could go in a different direction.”
The Fed has long said that the virus, which triggered the sharpest downturn in decades just over a year ago, will shape the course of the recovery.
About 3 million Americans are vaccinated every day, and a majority of the older Americans most at risk of dying from COVID-10 are fully vaccinated.
That, along with last month’s $ 1.9 trillion pandemic aid package and Fed interest rates approaching zero, sets the economy ready for what Fed officials expect this year to be the fastest growth in 40 years.
But new variants of the virus are causing an increase in caseloads, especially in parts of the Midwest and Northeast.
Minneapolis Fed president Neel Kashkari told the New York Economic Club in yet another virtual event Thursday that those variants, and the closure of schools and daycares they could enforce, pose the “biggest risks” to the US recovery.
Meanwhile, much of the world has only just started mass vaccinations, which is another risk according to policymakers.
Fed policymakers expect spending increases in the coming months, along with supply bottlenecks, to push prices up this year.
They say this is unlikely to turn into the kind of upward spiral in prices that would cause worrying inflation and for which the Fed should respond with rate hikes.
“We think there will be upward pressure on prices that can be passed on to consumers in the form of price increases – we think that will be temporary,” Powell said, pointing out that inflation has been low for 25 years, which leads to a psychology. of low inflation expectations.
And despite a government report last week showing that US employers added nearly a million jobs last month, there are still nearly 9 million fewer people in the US economy than before the pandemic.
Powell said he would like “a series of such months so that we can really start making progress toward our goals.”
The inequality of the recovery is also a serious problem, Powell said, with minorities, women and workers in sectors like leisure and hospitality outperforming others.
Fed policymakers raised their forecasts for growth, inflation and employment this year, but Powell noted that this would not necessarily contribute to a policy change.
To assess whether it was time to cut down on asset purchases, Powell said, “we’re not really looking at forecasts for this purpose, we’re looking at actual progress” in terms of inflation and employment.
Reporting by Ann Saphir with reporting by Dan Burns and David Lawder Editing by Chizu Nomiyama and Jonathan Oatis