- May 23, 2021
- Posted by: Trading
- Category: News
Recently, the Federal Reserve Board and the Federal Open Market Committee released the central bank’s minutes from the April 27-28 meeting, noting that the members of the committee are not satisfied by how the economy is reacting to the bank’s stimulus measures.
Despite the non-conformity, the committee agreed that the steps taken by the bank to counter the effects of the pandemic in the economy have been appropriate.
Some participants expressed their optimism about the future, expecting consumer spending to eventually pick up, now that the economy is reopening and the vaccination campaign advances at a formidable pace.
However, despite the positive expectations of the economic performance, the economy is still facing supply chain bottlenecks and other factors that are affecting the pace of recovery in the manufacturing sector. Added to this, the fact that new COVID strains are surging and that more people are refusing vaccinations complicates the economic recovery.
Furthermore, inflation is increasing at a concerning pace, which could be a significant problem if it ends up being persistent or rises at a pace that would hinder a proper policy reaction. Inflation is expected to be above 2% in the near term, which is over the bank’s inflation target. Supply chain bottlenecks and input shortages may contribute to a further increase in the price levels, which is a very concerning trend and is casting doubts on the bank’s current ultra-loose monetary policy stance.
However, the Federal Reserve doesn’t believe that this effect will be persistent, instead anticipating that those transitory effects will eventually fade.
Data about the labor market were also disappointing. Recovery has been uneven and milder than expected across different demographics and socio-economic groups while highlighting labor supply issues which, paired with an increasing labor demand, has put an upward pressure on wages.
“Many participants remarked business contacts having trouble hiring workers, likely reflecting early retirements, health concerns, childcare responsibilities, and expanded unemployment insurance benefits,” stated the FOMC in its minutes.
Some other participants of the committee said that labor market restraints are also affecting the labor force participation rate, which has not been able to come back to pre-pandemic levels.
Some members commented that at some point the committee should consider discussing a plan to adjust the pace of asset purchases.