The Federal Reserve will not revise its monetary stimulus regime despite rising inflation.
One day after the Department of Labor revealed that inflation had risen to a 5.4% year-over-year rate in June, Fed Chair Jerome Powell acknowledged that price levels have “increased notably and will likely remain elevated in coming months before moderating.” Nevertheless, Powell insisted that such inflation is temporary and primarily driven by post-COVID supply chain bottlenecks, telling Congress that the central bank is not prepared to amend its quantitative easing regime.
A Wednesday statement from the Federal Open Market Committee after the conclusion of its two-day meeting confirms that the bank will keep targeting a near-zero interest rate:
The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
Likewise, the Fed will continue its monthly $120 billion in asset purchases:
Last December, the Committee indicated that it would continue to increase 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, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
The Department of Labor is slated to reveal its data for July inflation on the morning of August 11. The next meeting of the Federal Open Market Committee is scheduled for September 21 and 22 — over a month after the next inflation report.
The Fed’s announcement comes in spite of growing uneasiness among citizens and business leaders over accelerating inflation.
For example, a recent survey among members of CNBC’s Global CFO Council — which represents a combined $5 trillion in market value — showed that one-third of American financial executives expect to raise prices in the face of high inflation. No CFOs taking the survey said that they were “very confident” or “somewhat confident” in the Fed’s ability to manage inflation over the next year, while 38% said that they were “only a little confident.” 47% expressed that they were “not at all confident.”