US economic recovery slow but ready for Fed to start withdrawing financial support

·2-min read

Washington, United States: The Federal Reserve said Wednesday that increasing Covid-19 cases have slowed the US economic recovery, but it may nonetheless be ready to "soon" begin to remove stimulus.

The economy has healed to the point that the central bank may slow the pace of its massive monthly bond purchases "if progress continues broadly as expected," the policy setting Federal Open Market Committee (FOMC) said in a statement after concluding its two-day meeting.

When the pandemic hit in March 2020, the Fed slashed its benchmark interest rate and began buying bonds and other securities to ease lending conditions and ensure the financial system would not seize up.

Fed Chair Jerome Powell has signaled that the start of the taper process could begin before the end of the year, but an increase in the key borrowing rate would not come until later.

But in their quarterly forecasts, more members of the committee now see at least one interest rate hike next year, and as many as three in 2023.

That tightening would come amid rising prices, as the median inflation forecast is now 4.2 percent for the year, even as their growth outlook was cut to just 5.9 percent this year rather than the seven percent projected in June.

The FOMC still attributes the recent price pressures to "transitory factors."

But market watchers, as well as inflation hawks on the FOMC, are concerned the stimulus is helping to fuel price increases that may prove more lasting than Powell has predicted.

The first step will be for the Fed to reduce the monthly asset purchases currently totaling at least $80 billion in Treasury securities and $40 billion in agency mortgage€'backed securities.

Despite the slowdown in growth, policymakers remain relatively optimistic about the outlook.

"The sectors most adversely affected by the pandemic have improved in recent months, but the rise in Covid-19 cases has slowed their recovery," the committee said, stressing that the bounce back is dependent on the course of the pandemic.

 

Also See: Asian markets, Wall Street hold gains after Fed signals easing extraordinary support measures for economy

China's public and businesses pay prohibitive cost of keeping country virus free

COVID deaths in US climb to more than 1,900 a day for the first time since March

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