Federal Reserve eyes stimulus, inflation

The Federal Reserve’s Open Market Committee declared it had made progress toward the goal of full employment and 2 percent inflation, but declined to take any policy action for now. This statement is the first step in the bank’s move toward reducing the $120 billion in monthly debt purchases.

Federal Reserve Chair Jay Powell said in a statement that any tapering of the purchases would require more improvement in the economy.

Inflation has been higher than expected, and Covid-19 concerns continue to spook optimism about economic growth and the labor market. Powell said the Federal Reserve’s view is that price pressures would eventually lessen, but that more time was needed to study data. He added that he wanted to see strong job numbers but was confident the labor market would normalize once pandemic disruptions begin to fade.

The committee decided to keep the target range for the federal funds rate at 0 to ¼% and said it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee's assessments of maximum employment and inflation has risen to 2 percent — and is on track to moderately exceed 2 percent for some time.

Last December, the committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and according to the Fed, the committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

The Fed indicated it would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals, and the assessments will include information about public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.