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Federal Reserve officials proceed with caution

Federal Reserve officials proceed with caution

The big question going into this September's Federal Open Market Committee (FOMC) meeting was whether or not the Federal Reserve would buy fewer bonds, after waiting on this action for the economy to become more reliable and stable. The act of buying bonds from the market as a result of an economic crisis is known as Quantitative Easing. In previous meetings, the FOMC has continued to do this in order to benefit the struggling economy that has failed to reach target recovery measures, including inflation and employment rates.

This month's meeting revealed that the committee's efforts have somewhat boosted the economy, but not enough to slow down its holdings of Treasury securities. Despite this, members are hopeful that "moderation in the pace of asset purchases" could become a reality in the near future, according to the full statement released on September 22, 2021, on the Federal Reserve website.

Economic recovery

The U.S. economy relies heavily on the resolution of the COVID-19 pandemic. The introduction of the vaccine has been a light at the end of the tunnel for this health crisis, but the different variants of the virus expose the economy to more potential risks.

"Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses," according to the Federal Reserve's FOMC statement.

Employment

Much of the focus has been on employment rates nationally. Once again, even though the unemployment rate is declining, the situation is not improving at the speed that the FOMC was hoping for.

Inflation

The target inflation rate has consistently remained at 2%, and the recorded inflation rate has also stayed consistently above this target. The committee made the choice to keep the federal funds rate at a 0% to 0.25% target rate.

Monetary policy

Because the unemployment rate is higher than expected and the inflation rate is not ideal, the committee will maintain an accommodative monetary policy to help achieve the goal. As it was in previous months, the target inflation rate average over time is 2%. If economic factors change and new information is obtained, the committee made it clear that it is open to adjusting its monetary policy.

Here are a few of the factors that will be assessed as potential risks:

  • Public health.
  • Labor market conditions.
  • Inflation pressures.
  • Inflation expectations.
  • Financial and international developments.

In more notable decisions, the Board of Governors of the Federal Reserve System will maintain the interest rate paid on reserve balances at 0.15% and approve the primary credit rate at the existing level of 0.25%.

Find out how inflation, employment and credit rates will impact your financial future by contacting a professional at The Federal Savings Bank.

*The information in this article was prepared by The Federal Savings Bank. Opinions represent TSFB's opinion as of the date of this report and are for general information purposes only.