US Fed to meet on July 27 as inflation, COVID-19 variants complicate US economic recovery

As inflation and the surge of COVID-19 increase risks to the US economy, the policy-setting Federal Open Market Committee (FOMC) will begin its two-day policy meeting on July 27, Tuesday. According to Washington Newsday, the Federal Reserve policymakers are anticipated to keep their easy money policies in place in a bid to assist American businesses and workers in surviving the pandemic’s effects. As the policy meetings are scheduled to commence in the coming week, markets and traders will be searching for signs of when the FOMC will begin tapering its enormous monthly debt purchases. 

As per reports, the bond-buying programme was intended to alleviate lending conditions during the crisis. However, it has now come under fire as inflation has rocketed to new highs as firms reopen and consumers spend the savings built up during the worst months of the pandemic. The focus will be on any indications that the Federal Reserve is reconsidering its vow to keep the benchmark lending rate at zero until the economy achieves maximum employment. 

Fed unlikely to change stimulative policies 

Fed Chair Jerome Powell has repeatedly said that the rise in inflation is a temporary effect of the economy returning to normalcy. He has also said that the Fed has instruments to respond if the surge continues for an extended period of time. However, Sam Stovall, who is the chief strategist at CFRA Research, believes the swiftness of the price spike likely has surprised the central bank. 

The Fed, on the other hand, is unlikely to change its stimulative policies this week or any time this year. Powell has reportedly promised to speak explicitly of any policy shift, but analysts expect he will wait until August’s annual central banking conference in Jackson Hole, Wyoming. 

Meanwhile, it is worth noting that Central bankers are meeting at a crucial juncture for the world’s largest economy. The fast-spreading Delta variant of COVID-19 has triggered the United States to reintroduce mask-wearing regulations in some parts, raising concerns that it could jeopardize recovery. At the same time, data also shows that costs are rising across the economy as a result of supply snarls, shortages of components, unique dynamics like rental car companies moving to rebuild fleets and "base effects," or the comparison to the depressed prices of the year-ago period.

(Image: AP)