Fed: Vaccination Progress Continues to Strengthen Economy

Progress on vaccinations has continued to strengthen indicators of economic activity and employment, the Federal Open Market Committee said today, adding that while the sectors most adversely affected by the pandemic have shown improvement, they have not fully recovered.

“Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain,” the committee said. The committee said that inflation has risen “largely reflecting transitory factors,” but that overall financial conditions “remain accommodative,” reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

In a press conference after the release of the FOMC statement, Fed Chairman Jerome Powell said that inflation has increased notably and will likely remain elevated in coming months before moderating. “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly because supply bottlenecks in some sectors have limited how quickly production can respond in the near term. These bottleneck effects have been larger than anticipated, but as these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal,” said Powell.

The target range for the federal funds rate will stay at zero to 0.25%, the committee said adding that it expects it will maintain that range until inflation has risen to 2%, is on track to moderately exceed 2% and maximum employment is reached.