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Fed: No Change in Rates Despite Strong Recovery

But central bank may start dialing back policies later this year
By Newser Editors and Wire Services
Posted Jul 28, 2021 2:46 PM CDT
Federal Reserve Says Recovery Is Still Strong
Federal Reserve Board Chair Jerome Powell testifies before a Senate Banking, Housing, and Urban Affairs hearing , Thursday, July 15, 2021.   (AP Photo/Jose Luis Magana)

(Newser) – The Federal Reserve said Wednesday that the US economy is strengthening and making progress on the Fed's employment and inflation goals, a small step toward dialing back its ultra-low-interest rate policies, perhaps later this year. The statement the Fed issued after its latest policy meeting said that ongoing vaccinations were helping the economy. But it dropped a sentence it had included after its previous meeting that said those vaccinations have reduced the spread of COVID-19, the AP reports. That was the only reference in its statement to the delta variant that has caused a spike in COVID cases in hotspots the US and many other countries. The central bank said that for now, it’s keeping its benchmark short-term rate pegged at nearly zero, where it has remained since the pandemic tore through the economy in March 2020

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The Fed is also buying $120 billion in Treasury and mortgage bonds each month—purchases that are intended to lower rates on longer-term consumer and business loans to spur more borrowing and spending. It is expected to start tapering the purchases later this year. The Fed’s latest policy statement comes as the economy is sustaining a strong recovery from the pandemic recession, with solid hiring and spending. But it also coincides with uncomfortably high inflation and concerns about the spread of the delta variant. In its latest statement, the Fed expressed its belief that the increase in inflation largely reflects "transitory factors." Among Fed watchers and investors, there is some concern that the central bank will end up responding too late and too aggressively to high inflation by quickly jacking up interest rates and potentially causing another recession.

(Read more Federal Reserve stories.)

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