Fed seeking inflation ‘moderately’ above 2 percent for now

The Federal Reserve is seeking to keep inflation moderately above 2 percent until maximum employment is reached but indicated it might slow its robust support for the economy.

The Federal Reserve Open Market Committee approved the monetary policy action July 28. Chair Jerome Powell, Vice Chair John Williams and members Thomas Barkin, Raphael Bostic, Michelle Bowman, Lael Brainard, Richard Clarida, Mary Daly, Charles Evans, Randal Quarles and Christopher Waller voted for the policy action. 

“With inflation having run persistently below this longer-run goal, the committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent,” the committee wrote. “The committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.” 

The committee has opted to keep the target range for the federal funds rate at 0 to 0.25 percent and expects to maintain this target range until labor market conditions reach levels consistent with maximum employment and inflation rises to 2 percent and stays on track to moderately exceed that figure “for some time.” 

Last December, the committee indicated it would continue increasing 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, progress has been made, and the committee expects to continue assessing progress in coming meetings. 

“In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook,” the committee wrote. “The committee 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. The committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations and international developments.” 

According to the Fed, it is utilizing “its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.” 

“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the Fed wrote. “The sectors most adversely affected by the pandemic have shown improvement but have not yet fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.” 

Gordon Fellows, president and CEO of the Mississippi Bankers Association, said economic markets remain uneven statewide. Some locations seeing good economic times include the Jackson, Miss., metro and the Gulf Coast region while other economic aspects, including agriculture, face challenging circumstances. That trend, however, predates Covid-19: Mississippi has consistently had one of the highest poverty rates in the United States. Fellows said federal Paycheck Protection Program funding is allowing Mississippi to quickly recover from the pandemic, noting such funding was allocated to small businesses, allowing that sector of the economy to remain relatively stable.

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