The Federal Reserve will likely stick with its gradual approach to normalizing interest rates even after minuscule increases last month, officials said in minutes of the U.S. central bank’s meeting earlier this month. Fed officials expect “transitory” inflation to rise from the current low level and said they could raise interest rates faster than their current forecast if the economy performs better than expected.
The Federal Reserve did what was widely expected and kept its key short-term interest rate unchanged Wednesday in a range between 2.25% and 2.5%. The Fed also signaled it plans to continue to reduce its balance sheet, despite the fact that inflation remains below the Fed’s 2% target.
During Wednesday’s policy meeting, the Federal Reserve said it would continue monetary easing and keep the federal funds rate at near zero. Like previous statements by members of the Federal Open Market Committee (FOMC), the central bank panel is not worried about inflation and says it should have only a temporary effect on the U.S. economy.
Inflation will have a temporary effect while the recovery is uneven and far from complete
Wednesday’s latest FOMC meeting was no different from the agency’s previous meetings. A press release issued after the meeting noted that the pandemic is causing enormous human and economic problems in the United States and around the world.
The Federal Reserve did see signs of picking up economic activity and employment, but Fed Chairman Jerome Powell stressed that the recovery was uneven and far from complete.
The press release also acknowledges that inflation has increased:
The areas hardest hit by the pandemic remain weak but are showing improvement. Inflation has increased, mainly due to temporary factors.
Some asset prices are high. You can see that there is some recovery in the financial markets. That’s a fact. I don’t want to say it has nothing to do with monetary policy, but it also has a lot to do with vaccination and economic recovery, Fed Chairman Jerome Powell said at a press conference following the FOMC announcement. According to the National Association of Home Builders, the cost of lumber has increased 180% since April 2020. The Consumer Price Index (CPI) increased by 0.2% between February this year and March 2021, and by 3.3% from March 2020.
The FOMC summary notes that financial conditions remain favorable as a result of central bank action. This policy, according to the Fed, has allowed credit to flow to American households and businesses. Powell also noted that inflation could jump in the future and said that these one-time price increases would likely have only a temporary effect on inflation.
It will be some time before we see more significant progress, Powell said.
Wall Street megabanks, the so-called power of
Meanwhile, investigative journalists Pam and Russ Martens of Wall Street on Parade have published compelling evidence that the Fed is misleading the public when it comes to the supposed soundness of Wall Street’s megabanks. Martens said the plan the Fed implements in 2020 and 2021 is the same as the plan the megabanks had in 2008. As Bitcoin.com News previously reported, long before Covid-19 made headlines, central banks around the world had resorted to radical changes in monetary easing.
The Federal Reserve has taken the lead in easing monetary policy, and Powell stressed to Congress in 2020 that megabanks are a source of strength for the U.S. economy.
The reason why Wall Street bank stocks collapsed much more than the market overall in March 2020 is the same reason why banks collapsed much more than the market overall in 2008: interconnectedness through derivatives and leverage, according to a scathing Martens report.
Martens’ data shows that historic financial firms such as JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley have suffered significant losses ranging from 40 to 50 percent since the beginning of 2020. Citigroup suffered a loss of 56% and 23. March 2020.
These five banks are highly intertwined through derivatives, as they are exposed to the same counterparties (the companies on the other side of their billion-dollar derivatives transactions), the report said. Smart Wall Street traders understand these risks and want to flee these banks in a crisis.
Fed continues large-scale securities purchases and keeps rates near zero
The Fed’s FOMC press release also indicates that bond purchases will continue, with interest rates close to zero. Moreover, the Fed maintains its usual inflation target of 2%, which must be closely monitored, and the Bank knows it will exceed this target during the transition period.
The FOMC has decided to leave the target range for the federal funds rate at 0 to 1/4 percent and expects that it will be appropriate to maintain this target range, the Fed statement said. The Fed will also increase the amount of Treasury bonds held by the central bank.
In addition, the Fed will increase its holdings of Treasury securities by at least $80 billion per month and of MBS by at least $40 billion per month until significant progress is made toward the committee’s goals of maximum employment and price stability, the FOMC said in a press release.
What do you think of Fed Chairman Jerome Powell’s recent comments and the FOMC’s announcement on interest rates and bond purchases? Let us know what you think in the comments below.
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