Not Yet 👎

by 31 Aug, 2021

Not Yet

On Monday, Loretta Mester, president of the Cleveland Federal Reserve Bank, said that the US economy is rebounding quickly, but she isn’t confident that recent inflation readings would be adequate to meet the US central bank’s price stability target. She acknowledged that policymakers must pay close attention to price fluctuations, but she expects some inflation indicators to fall when the pandemic’s supply chain disruptions are handled.

In an interview with Reuters on Monday, Mester said she’d like to see more data before concluding the economy is on the way above 2% inflation. Her comments show the rising tensions among Fed members as they reach a policy turning point without widespread agreement on some of the fundamental measures that define their objectives.

At the onset of the pandemic last year, the Fed cut interest rates to near zero and began buying $120 billion in Treasuries and mortgage-backed securities every month to calm markets and boost the economy. According to minutes from their July meeting, Fed policymakers broadly agreed that the economy had recovered sufficiently for them to begin tapering the pace of asset purchases later this year.

However, according to their present advice, the tightening phase when interest rates are raised  — cannot begin until certain conditions are met. The economy must be at full employment, and inflation must be on pace to surpass 2% for some time, in addition to increasing to 2%, which it has already done.

Fed officials will continue to weigh the option of tapering asset purchases in the coming months.

I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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