Fed Holds the Course at September 2021 Meeting

'Policy will remain accommodative'

Federal Reserve Chair Jerome Powell announced that the FOMC, at its meeting that concluded on Sept. 22, 2021, has decided to "keep interest rates at zero and continue the current pace of asset purchases." More specifically, the FOMC will continue to target the benchmark federal funds rate at a range of 0% to 0.25%.

Powell reiterated the Fed's commitment to its dual mandate of promoting maximum employment while also fostering price stability. He noted that economic indicators point to progress on both fronts. However, he warned that "the path of the economy continues to rely on the path of the [COVID-19] virus."

Key Takeaways

  • According to Fed Chair Jerome Powell, "The path of the economy continues to rely on the path of the [COVID-19] virus."
  • FOMC members "still foresee rapid growth" ahead.
  • "Long-run [inflation] expectations are in line with the goal of 2%."
  • "If progress continues, a moderation of the pace of asset purchases can be warranted."
  • Evergrande does not pose risks for the U.S.

'Still Foresee Rapid Growth'

Powell noted that U.S. real gross domestic product (GDP) grew by 6.4% in the first half of 2021. While commenting that members of the FOMC "still foresee rapid growth" ahead, he cautioned that rising COVID-19 cases have slowed the pace of recovery recently.

While "demand for labor is very strong," job growth slowed markedly in August, especially in sectors most sensitive to the pandemic such as the leisure and travel industries. However, the FOMC believes that negative factors should diminish and projects that the unemployment rate will continue to fall through the rest of 2021 and into 2022.

Nevertheless, Powell observed that unemployment has been "disproportionately" high in services industries and among minorities. He also noted, in response to a question, that the emergence of the Delta variant may be discouraging some potential job seekers.

Declining Inflation

Powell said that supply bottlenecks have been "larger and longer lasting than expected" and that supply constraints are particularly acute in autos, where a worldwide shortage of semiconductors is a major issue. That said, the sense of the FOMC is that the inflation rate in the U.S. will drop from about 4.2% currently to about 2.2% by the end of 2022.

He did warn that, as reopenings of the economy proceed, new bottlenecks could appear. Nonetheless, he said that "long-run [inflation] expectations are in line with the goal of 2%."

Asset Purchases

"If progress continues, a moderation of the pace of asset purchases can be warranted," Powell said. He added, "Policy will remain accommodative until we achieve maximum employment and price stability goals." While nothing was decided at this meeting, he indicated that "a gradual tapering process that concludes around the middle of next year can be appropriate."

Not Worried About U.S. Corporate Debt

In response to a question about the Evergrande situation, Powell said that this is strictly an issue for China, which, he added, has exceptionally high levels of debt in its economy. "I would not draw parallels with the U.S. corporate sector," he remarked.

Central Bank Digital Currency Initiative

In response to a question, Powell said that the Fed is actively assessing whether it should create a central bank digital currency (CBDC) and that a study paper on this topic should be upcoming soon. "It is important to do it right, rather than fast," Powell added, noting that such an initiative would only be undertaken with broad support from both the Congress and the Executive Branch of the federal government.

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  1. Board of Governors of the Federal Reserve System. "FOMC Press Conference,"

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