YIBADA

U.S. economic recovery intact despite COVID-19 surge, Fed says

| Jul 28, 2021 03:46 PM EDT

People wear masks around Times Square, as cases of the infectious coronavirus Delta variant continue to rise in New York City,

The U.S. economic recovery remains on track despite a rise in coronavirus infections, the Federal Reserve said on Wednesday in a new policy statement that remained upbeat and flagged ongoing talks around the eventual withdrawal of monetary policy support.

"With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen," the U.S. central bank said in a statement after the conclusion of its latest two-day policy meeting.

Looking past the quadrupling of daily U.S. coronavirus infections that has occurred since the Fed last met in June, the central bank indicated it still had faith that an ongoing vaccination drive would "reduce the effect of the public health crisis on the economy" and allow a robust reopening to proceed.

Fed policymakers, in a unanimous statement, also said they were moving ahead with discussions about when to reduce the central bank's $120 billion in monthly bond purchases, a precursor to eventually raising interest rates.

In December, the Fed said it would not change its bond-buying program until there had been "substantial further progress" in repairing a labor market that was then 10 million jobs short of where it was before the pandemic.

That number is now below 7 million, and the Fed for the first time acknowledged the economy had taken a step towards its benchmark for reducing the $80 billion in U.S. Treasury bonds and $40 billion in mortgage-backed securities it buys each month to keep long-term borrowing costs low for consumers and businesses.

"The economy has made progress, and the (Federal Open Market) Committee will continue to assess progress in coming meetings," the Fed said in language pointing towards a possible reduction in bond purchases later this year or early in 2021.

The Fed also said that higher inflation remained the result of "transitory factors," meaning it was not an imminent risk.

The central bank kept its overnight benchmark interest rate near zero along with leaving the bond-buying program unchanged.

Karim Basta, chief economist at III Capital Management, said the "incrementally more upbeat" policy statement opened the door to a September bond taper announcement if job growth comes in strong and the coronavirus caseload does not dent spending.

Acknowledging some progress towards their goals "seems designed to give them the option to announce" a change in bond purchases as soon as September, he wrote.

U.S. stocks, modestly lower before the release of the policy statement, moved toward the unchanged mark on the day. Yields on U.S. Treasuries were little changed.

Fed Chair Jerome Powell will elaborate on the latest policy statement in a news conference at 2:30 p.m. EDT (1830 GMT).

The Fed did not release any new economic projections on Wednesday, but Powell will likely be asked why he rise in daily U.S. COVID-19 infections did not appear to change the Fed's economic outlook.

Some economists have begun to warn that new infections could upend plans to fully reopen schools in the fall, and may eventually dent consumer spending particular on travel and other close-contact services.

Most Popular

EDITOR'S PICK