Monday, 18 October, 2021

US Fed preparing to remove stimulus ‘soon’

WASHINGTON: Rising Covid-19 cases have slowed the US economy’s recovery, but the Federal Reserve on Wednesday said it may nonetheless “soon” be time to begin removing the stimulus it provided during the pandemic.

The closely-watched announcement left policy unchanged for now, but new forecasts from central bankers show they expect the first interest rate increase next year, reports AFP.

That would take the benchmark lending rate above zero in the world’s dominant economy for the first time since the start of the pandemic.

Market watchers, as well as inflation hawks at the Fed, are concerned the stimulus is fueling price increases, and Fed Chair Jerome Powell acknowledged that inflation could remain higher than expected as supply and employment constraints continue after last year’s widespread business closures.

When the pandemic hit in March 2020, the Fed slashed its benchmark interest rate and began buying bonds and other securities to ease lending conditions and ensure the financial system would not seize up.

Powell said the purchases served as a “critical tool” to support the economy and keep markets functioning, but their effectiveness has waned.

Now, the economy has healed to the point that the central bank could slow the pace of purchases “if progress continues broadly as expected,” the policy setting the Federal Open Market Committee (FOMC) said in a statement after concluding its two-day meeting.

The Fed is juggling competing forces as rising prices fuel inflation concerns while the economy remains about five million jobs short of where it was before the pandemic struck, forcing widespread business closures.