MercoPress. South Atlantic News Agency

Fed in no rush to scale down liquidity support; inflation trends ‘subdued’

Commodity prices have risen significantly admits the Federal Reserve

The Federal Reserve said on Wednesday it will maintain the current rates and is in no rush to scale back its extensive support for the US economy while estimating that the increase in commodity prices (and inflation) is transitory.

The Federal Open Market Committee said in the release after a two-day meeting it intends to complete its 600 billion US dollars bond buying program in June as scheduled to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

“The FOMC is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of 600 billion of longer-term Treasury securities by the end of the current quarter”, however the Committee will regularly review the size and composition of its securities holdings in light of incoming information and “is prepared to adjust those holdings as needed to best foster maximum employment and price stability”.

“The FOMC will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period”.

More specifically regarding inflation the Committee admits that commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the March meeting but “longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued”.

The unemployment rate remains elevated “and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate”.

In its presentation the FOMC indicates that the US economic recovery is proceeding at a moderate pace and overall conditions in the labour market are improving gradually with household spending and business investment in equipment and software continue to expand. However, investment in non-residential structures is still weak, and the housing sector continues to be depressed. “The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability”.

The next meeting of the FOMC is scheduled for June 21/22. The Fed also released on Wednesday the summarizing the economic projections made by Fed Board members and Fed Banks presidents for the April 26-27 meeting of the Committee. The table will be incorporated into a summary of economic projections released on May 18 with the minutes of the April 26-27 meeting.