Everyone has been waiting to hear the Federal Reserve’s thoughts regarding inflation and their plans to counter it. The biggest question on everyone’s mind was whether or not the Fed is planning on raising interest rates. On Wednesday, 6/16/21, Federal Reserve Chairman Jerome Powell made a very important announcement regarding the central bank’s thoughts regarding inflation and how they will address it.
Many people feel that the Fed has been downplaying inflation and the affects it is having on the economy. Today was a little different because Chairman Powell discussed how the Fed’s new inflation expectations are higher than they previously were. The Federal Reserve raised its headline inflation expectation to 3.4%, which is a full percentage point higher than the projection from March. This new expectation is thought to be more realistic than their previous projection.
The biggest news from Chairman Powel was that the Federal Open Market Committee will keep benchmark short-term borrowing interest rates near zero percent. This is important to know because generally when interest rates rise, stock prices fall. Interest rates obviously can’t stay near zero forever and officials indicated that rate hikes could come as soon as 2023, which is a year soon than the Fed’s previous statement in March that it saw no increases until at least 2024. Powell also said the Fed will not cut back on its aggressive bond-buying program but did mention this issue was discussed at their meeting.
Powell mentioned many positive trends in the economy that the Fed has been tracking. Household spending is up. Average pay is up. Unemployment is down to 5.8%. Unemployment is expected to be down to 4.5% by the end of this year, and down to 3.5% at the end of 2023. Powell also noted that excessive spending from the excitement of reopening the country is helping to drive up consumer prices, which adds to inflation concerns but this extra consumer spending is expected to come down in the near future.
Fed Chairman Powell reiterated the fact that the central bank will do everything they can to help the economy recover from the impacts of the pandemic. He also reaffirmed that interest rates will not rise until certain goals are met regarding unemployment, inflation, and other factors. Powell discussed how the increased inflation currently being experienced by the market is temporary and the long-term goal is still 2%.
That was all the highlights from today’s news conference from Federal Reserve Chairman Jerome Powell. I think it was nice to see the Fed raise their inflation expectation because it’s more realistic to what we are seeing in the markets, especially with the prices of real estate, commodities, and raw materials being so high. What are your thoughts about today’s announcements from the Fed? Leave me a comment and let’s have a conversation. Don’t forget to follow my Twitter @vancealm where I post about investing and finances every weekday. Invest wisely!