The Federal Reserve maintains low interest rates, emphasizing the economic recovery, with inflation expected to remain above target in the coming months.

The Federal Reserve stated after its meeting on Wednesday that it will maintain its loose monetary policy because inflation is still temporary. However, it also hinted that the U.S. economy is recovering and may no longer need as much monetary support.

The Federal Open Market Committee (FOMC) of the United States announced that it will keep the benchmark interest rate in the range of 0% to 0.25% and will continue its commitment made in December last year to purchase at least $120 billion of bonds per month until the economy shows "substantial further progress."

Powell stated that adjustments to asset purchases will be made as needed based on the economic conditions. As for what constitutes "substantial further progress," Powell pointed out that there is no single data point that serves as a basis for the central bank's decision-making, "We monitor the labor market from various data perspectives."

Powell mentioned that workers are seeking new jobs rather than returning to their old positions, which is prolonging the employment process. Businesses across the U.S. are also complaining about the difficulty in hiring personnel, "This may be because people are being selective in choosing their next job, and most importantly, people want to work."

Therefore, Powell is optimistic that although full employment has not been achieved yet, with high inflation rates, there will be good progress in achieving maximum employment in the coming year or years.

Powell added that if the more contagious Delta variant leads to a significant decrease in indoor dining or travel, or if the vaccination rate slows down, economic activity may experience a setback, "As long as there are new variants, no one is truly safe."

The Fed also announced the possibility of establishing a "permanent repurchase agreement" (repo) to improve the financial system's pipelines. One tool will be aimed at domestic dealers and banks, while the other will target foreign banks. This tool will serve as a backstop for the money market, supporting the effective implementation of monetary policy and the smooth operation of the market.

The maximum operational size for domestic loans in the U.S. is $500 billion (with a minimum bid rate of 25 basis points), while the maximum operational size for loans from the Foreign International Monetary Authorities (FIMA) is 25 basis points, and the maximum operational size for trading partners is $600 billion.

For the past few months, inflation has remained above the central bank's 2% target, and it is expected to stay above 2% in the coming months before moderating. Therefore, the central bank is still a distance away from raising interest rates. "If there is high inflation, there is also high employment, they often go together." Hence, the option of raising interest rates is not on the Fed's "radar" yet.

This article is authorized and reproduced from Horizon News