Federal Reserve Holds Steady in September 2021 Meeting: No Rate Change, Asset Purchases Continue
In the September 2021 FOMC meeting, Fed Chair Jerome Powell confirmed the continuation of zero interest rates and ongoing asset purchases, emphasizing steady economic growth despite COVID-19 uncertainties.
Fed Maintains Accommodative Monetary Policy
On September 22, 2021, Federal Reserve Chair Jerome Powell announced that the Federal Open Market Committee (FOMC) would maintain the federal funds rate between 0% and 0.25%, continuing its asset purchase program at the current pace. This decision reflects the Fed's commitment to supporting the economy through ongoing challenges.
Powell emphasized the Fed’s dual mandate to maximize employment and ensure price stability, noting positive progress in both areas. However, he cautioned that the economic outlook remains closely tied to developments in the COVID-19 pandemic.
Highlights from the Meeting
- Economic recovery depends heavily on COVID-19 trends, according to Powell.
- FOMC members anticipate continued rapid economic growth.
- Long-term inflation expectations remain aligned with the Fed's 2% target.
- Potential tapering of asset purchases could begin if progress persists.
- Concerns about Evergrande's impact do not extend to the U.S. economy.
Robust Economic Growth Expected
Powell reported that the U.S. economy grew at an annualized rate of 6.4% during the first half of 2021. Despite recent slowdowns linked to rising COVID-19 cases, the FOMC projects strong growth ahead. Labor demand remains high, though job gains slowed in August, particularly in pandemic-sensitive sectors like leisure and travel.
The Fed expects unemployment rates to decline through late 2021 and into 2022, although disparities persist among service industries and minority groups. The Delta variant has also potentially discouraged some job seekers from entering the workforce.
Inflation Trends and Supply Challenges
Supply chain disruptions, especially in the automotive sector due to semiconductor shortages, have contributed to higher inflation than initially anticipated. Nevertheless, the Fed forecasts inflation to ease from around 4.2% to approximately 2.2% by the end of 2022.
Powell acknowledged that new supply bottlenecks might emerge as the economy reopens but reaffirmed that long-term inflation expectations remain consistent with the 2% goal.
Future of Asset Purchases
While no immediate changes were made, Powell indicated that a gradual tapering of asset purchases could be appropriate if economic progress continues, potentially concluding around mid-2022. The Fed will maintain accommodative policies until maximum employment and price stability are achieved.
U.S. Corporate Debt and Evergrande Risks
Addressing concerns about the Chinese property developer Evergrande, Powell stated that the issue is contained within China’s economy and does not pose risks to the U.S. corporate sector, which operates under different financial conditions.
Exploring a Central Bank Digital Currency (CBDC)
Powell revealed that the Fed is actively researching the possibility of issuing a central bank digital currency. Emphasizing careful deliberation, he noted that any decision would require broad consensus from Congress and the executive branch. A detailed study on this initiative is expected soon.
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