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Fed Says Economy's Recovery Continues, Not Strong Enough for Rate Talk

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Economics

Fed Says Economy's Recovery Continues, Not Strong Enough for Rate Talk


July 29, 2021
federal reserve
Photo: Tryfonov | stock.adobe.com

The Federal Reserve said it is nowhere near considering a rate hike as the economy continues its strong recovery despite growing concerns over the delta variant. The Federal Open Market Committee wrapped up its two-day meeting on Wednesday by maintaining low interest rates. Chairman Jerome Powell said the economy has yet to reach “substantial further progress,” which the Fed determines based on inflation and employment rates, says CNBC. When those benchmarks are reached, monthly federal bond purchases will slow and ultimately stop, resulting in raised interest rates.

The statement noted only that “progress” has been made, and the FOMC will continue to watch conditions to see how close they get to the Fed’s goals.

The notation that “progress” has been made towards the Fed’s goals on employment and inflation was nevertheless seen as a nod that changes to policy, particularly regarding the monthly bond purchases, could be on the way.

“The Fed has started the tapering clock,” said PNC chief economist Gus Faucher.

Markets had been watching for the Fed’s views on the spread in the Covid-19 delta variant, but Powell and his fellow officials were relatively sanguine at least in terms of the threat the virus poses to the economy.

Stocks shaved some losses during Powell’s remarks, with the Dow negative but the S&P 500 and Nasdaq in the green.

Powell noted the rising threat that the pandemic is posing but said he does not see it having a major economic impact.

“What we’ve seen is with successive waves of Covid over the past year and some months now, there has tended to be less in the way of economic implications from each wave,” Powell said at his post-meeting news conference. “We will see if that is the case from the delta variety.”

“We’ve kind of learned to live with it,” he said later.

In a separate move, the Fed said it would establish two standing repo facilities, one for domestic markets and the other for foreign and international authorities. The facilities allow institutions to exchange high-quality collateral, primarily Treasurys in the case of the domestic offering, for reserves.

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