(Reuters) – US Federal Reserve plans to keep its policy very light, even though data show that the economy is leaning higher, with policy makers predicting a projected price rise this year on its own. . about the recent increase in COVID-19 infections.
“Cases are coming back here, so I would simply urge people to be vaccinated and continue social distancing,” said Fed Chairman Jerome Powell, who was shot at an economic forum at the International Monetary Fund’s virtual meetings. and the World Bank. “We do not want to receive an outbreak; even if it could have less economic damage and kill fewer people, it will slow recovery. ”
Speaking at a separate event, the chairman of the Federal Reserve Bank of St. Louis James Bullard said the Fed should not even discuss monetary policy changes until it is clear that the pandemic is over, closely linking future Fed talks to the success of the vaccination effort.
The Fed has said it will continue to buy $ 120 billion a month in bonds until it sees “substantial further progress” toward meeting the central bank’s employment and inflation targets.
Bullard said he considers this conditional on the defeat of the coronavirus. “We have to get the pandemic behind us first,” he said. “There are still risks, and things could go in another direction.”
The Fed has long said that the virus, which has reached its strongest recession in decades, just over a year ago, will determine the course of recovery.
About 3 million Americans are vaccinated every day, and most older Americans at highest risk of dying from COVID-10 have been completely vaccinated.
That, along with last month’s $ 1.9 trillion pandemic aid package and near-zero Fed interest rates, sets the economy for what Fed officials expect to be the fastest growth in 40 years this year. .
But new variants of the virus are increasing the number of cases in areas in the Midwest and Northeast, in particular.
Neel Kashkari, president of the Minneapolis Fed, told the New York Economic Club on Thursday that these options, as well as the closure of schools and day centers that could force them, are “the biggest risks” to the US recovery.
Meanwhile, much of the world has just begun mass vaccinations, representing what policymakers say is another risk.
Fed policy makers expect spending to rise in the coming months, along with supply bottlenecks, to raise prices this year.
They say it is unlikely to turn into a kind of upward spiral of prices that would be a worrying inflation and require the Fed to respond with rate hikes.
“We believe there will be upward pressure on prices that could be passed on to consumers in the form of price increases – we believe this will be temporary,” Powell said, noting that inflation has been falling for 25 years, fueling a psychology . of low inflation expectations.
And despite a government report last week showing that US employers added nearly a million jobs last month, there are still nearly 9 million fewer employees in the U.S. economy than before the pandemic.
Powell said he would like to see “a series of months like this so we can really start showing progress toward our goals.”
The unevenness of the recovery is also a serious issue, Powell said, with minorities, women and workers in sectors such as leisure and hospitality doing worse than others.
Fed policy makers have stepped up their growth, inflation and employment forecasts this year, but Powell said they would not necessarily fuel any policy changes.
To judge whether it was time to reduce asset purchases, Powell said that “we are not really looking at forecasts for this purpose, we are looking at real progress” in inflation and employment.
Reporting by Ann Saphir Reporting by Dan Burns and David Lawder Editing by Chizu Nomiyama and Jonathan Oatis