Fed leaves interest rates alone but will react if inflation remains too high.


No increase in interest rates, at the Fed meeting today, citing inflation, labor market growth, and stronger job numbers. Powell said,inflation is  expected to stay above 2% in the months ahead. Inflation running  below  2 %  is the goal Powell said. He stated the committee will ultimately decide these factors, and it all depends on incoming data in the next few months. “I’d say we have some ground to cover on the labor market side,” Powell said Wednesday.

Chairman Jerome Powel said housing is rising at an exceptionally rapid pace and remains strong. “There is little support for idea of tapering (mortgage-backed securities) earlier than Treasury’s,”

In coming meetings, Powell said they will assess the forthcoming goals and will be as transparent as possible when making decisions with interest rates. In terms of COVID and the Delta strain, The Fed Chairman sees less economic pressure in the economy when COVID  began. However, he noted possible economic affects by people puling back from certain activities due to the Delta Variant.

Inflation needs to go back to 2% but the Fed will look at tapering asset purchases, but this is  not on the radar screen for lift off just yet. When it does, it will become a priority.

Powell mentioned inflation is not broadly based across the US and that it is across prices of cars, travel, and certain sectors, but the risks to inflation are probably to the upside for now. Price stability is half of our mandate. If  inflation keeps riding they will use their tools as appropriate so it not over 2% which is well above the Fed’s target. Expectation should be set at 2% or blow. Powell  said it is driven by the supply side all over the world  and they just can’t keep up, but no reason to panic.

It is expected  that inflation will remain high and taper off, but FED will act if inflation remains too high. Supply bottlenecks have been larger than expected.


For world issues,  Powell said that an important feature of this recovery is the COVID-19  recovery of other nations, which is a feature of our economy. He said  stronger global  economy will lead to more exports. On the COVID risk side, no one is finally safe, but we don’t know. As vaccinations rise, this will help, but said  vaccines are important to get for health reasons, and a factor in not shutting down the economy.


Fed Chairmen Powell feels the labor market has improved- but has a way to go. Rates would not get raised unless inflation goes higher- even if the labor market increases. The test is to watch how things  go down the road when the Fed will  think of raising interest rates.

If we are not at max employment, Powell said, he could be prepared to raise interest rates but may cut asset purchases as raising rates is not ideal. Powell  feels the path to high employment is a path that we are on and will  take long in micro-economic times. He could not at this time mention a numeric threshold for a maximum unemployment rate at this time. Strong job creation is in the future and we are on a path to a strong labor market.

Powell is looking for couple of months of new data and said he may not layout any plans until the fall, but no decision is made about this timing. He will see what people views are about the economy. Powell wants to provide clarity as appropriate. Today was the first deep dive of information, but no decision on any timing, but expects progress at that point, he commented.

The Fed’s  capital requirements should be strong Powell says. An undercapitalized banking system is not good for the economy. In the previous crisis, banks were over capitalized. Business investment is rising at a solid pace. He believes it important to support the flow of credit to low- and moderate-income communities.

Powell  will attend the yearly retreat of the world’s top central bankers and economists in Jackson Hole, Wyoming this September and mentioned the speech is  still being written.

In final, Powell is unsure when inflation rates will fall but expects inflation to be elevated in the coming months, then taper off.  Some of these waves  in the economy really do not have an impact on the total economy. Only the  Delta  variant would impact the economy due to workers not returning to work, Powell said. Household spending is rising at an exceptionally rapid pace.

The dollar closed weaker today.


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