Should the Fed Rethink Inflation as Delta Variant Scours the Country?
Rising prices, a constricted global supply chain and the quickly spreading delta variant are the topics of discussion for the Federal Reserve two-day meeting taking place this week. While it’s likely that Fed officials will continue to support an eventual policy shift, these new risks pose a threat to a strong U.S. recovery, reports Reuters.
Inflation has substantially risen against expectations and the consumer-price index is up 5.4% from a year ago, noted Barron’s. And according to a new Associated Press-NORC Center for Public Affairs Research poll, 54% of Americans say the economy is in poor shape.
While Fed officials met mid-June with a positive outlook on a quick economic recovery, Reuters reported that economists see the new outbreak as potentially changing consumers’ willingness to spend and travel. These economists are saying that this will likely require the Fed to balance faith in recovery with what could potentially go wrong.
“Again and again we’ve seen over the last 18 months that the No. 1 determinant of economic activity is the virus,” said Karen Dynan, a Harvard University economics professor and former assistant U.S. Treasury Secretary, reports Reuters. “I think that we will continue to make forward progress, but that progress will be slower than otherwise.”
Last month, the Federal Reserve signaled a shift in monetary policy sooner than expected to support a strong U.S. recovery, however, Reuters added that the Fed continues to buy $120 billion in government bonds each month and hold its policy interest rate near zero for the time being. Fed officials and the Biden administration both say that current price increases are mostly the result of a complicated economic reopening and that these issues will reduce on their own.
A new policy statement is to be issued Wednesday at 2 p.m. (1800 GMT) followed by a press conference by Fed Chair Jerome Powell, Reuters reported.
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Last updated: July 27, 2021