(Reuters) – The US Federal Reserve plans to keep its policy super easy, even when data shows the economy is up and running, while policymakers predict on Thursday that a projected rise in prices this year will will fade on its own and warn of the recent rise in COVID-19 infections.
“The cases go back here, so I would just ask that people get vaccinated and continue to distance themselves socially,” Fed Chairman Jerome Powell, who has been fired, said at an economic forum during the meetings. International Monetary Fund and the World Bank. “We don’t want to get another outbreak; even if it can have less economic damage and kill fewer people, it will slow recovery. “
In a separate ceremony, St. Louis Federal Reserve Bank President James Bullard said the Fed should not even discuss changes in monetary policy until it is clear that the pandemic is over, linking the future Fed debates with the success of the vaccination effort.
The Fed has said it will continue to buy $ 120 billion in bonds a month until it sees “substantial progress” toward meeting the central bank’s employment and inflation targets.
Bullard said he believes this depends on beating the coronavirus. “First we have to have the pandemic behind us,” he said. “There are still risks and things can go in a different direction.”
The Fed has long said the virus, which caused the sharpest slowdown in decades just over a year ago, will determine the course of the recovery.
About 3 million Americans are vaccinated every day and most of the older Americans most at risk of dying from COVID-10 have been completely vaccinated.
That, along with last month’s $ 1.9 trillion pandemic relief package and the Fed’s near-zero 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 causing an increase in case loads in midwestern and northeastern areas particularly.
Minneapolis Fed Chairman Neel Kashkari told the New York Economic Club on Thursday at another virtual event that these variants, and the closure of the school and daycare that could force them, are the “biggest risks “for the recovery of the United States.
Meanwhile, much of the world has barely started making mass vaccines, which means that what policymakers said was another risk.
Fed policymakers expect an increase in spending in the coming months, along with supply bottlenecks, to raise prices this year.
They say it is unlikely to become a sort of upward price spiral that would constitute worrying inflation and force the Fed to respond with rate hikes.
“We believe there will be upward pressure on prices that can be passed on to consumers in the form of price increases, we believe this will be temporary,” said Powell, who noted that inflation has been low for 25 years, fueling of a psychology. of low inflation expectations.
And despite a government report last week showing that U.S. employers added nearly a million jobs last month, there are still nearly 9 million fewer employed 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 start showing progress toward our goals.”
Powell said the recovery gap is also a serious problem, as minorities, women and workers in sectors such as leisure and hospitality are worse off than others.
Fed policymakers boosted their growth, inflation and employment forecasts this year, but Powell noted that it would not necessarily feed into any policy change.
To judge whether it was time to reduce asset purchases, Powell said, “We’re not really looking at forecasts for that purpose, we’re looking at real progress” on inflation and employment.
Ann Saphir report with report by Dan Burns and David Lawder Edited by Chizu Nomiyama and Jonathan Oatis