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News for December 3, 2021

Fed Pulls Back Economic Aid

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Federal Reserve Chair Jerome Powell on Wednesday said that the Fed is sticking to its economic forecast that COVID-19 is likely to fade, consequently allowing production bottlenecks in the supply chain to unblock, a report said. In addition to the forecast, more people will go back to the workforce, and the economy will grow, easing inflation pressures.

Powell implied that the Fed isn’t likely to see the effects of inflation and employment until COVID-19 and its implications for the economy—including limited travel, lower expenditure, and supply and labor shortages—continue to ease.

“We hope to achieve significantly greater clarity about where this economy’s going and what the characteristics of the post-pandemic economy are over the first half of next year,” he said.

For now, the Fed will begin to counter inflation pressures by cutting down its $120 billion in monthly bond purchases by $15 billion per month. The purchases announced last summer were designed to lower long-term interest rates to encourage spending and borrowing. As the economy recovers, these purchases aren’t required, Powell suggested.

He also said that the Fed will not hesitate to increase rates in the event of an increase in inflation or if consumers or companies start to anticipate increased prices. This can turn into a self-fulfilling pattern, Powell said. If businesses, for instance, are expecting higher costs, they’ll increase their prices in response.

“For now, (the risk) appears to be skewed toward higher inflation,” he said. “We need to be in a position to act in case in case it becomes necessary to do so or appropriate to do so.”

According to the report, the central bank is moving from a lengthy effort to stimulate the economy and encourage hiring to combating inflation. The Fed is now facing the delicate task of ending its ultra-low-rate policies and hopes to reduce inflation, but not going so fast that it could weaken the employment market or trigger a recession.

The economy has recovered from the pandemic recession. However, growth and hiring decreased in July-September due to a rise in delta cases deterring many individuals from going out, eating out, and shopping.

Many economists believe that as vaccinations increase and the delta wave diminishes, job growth will be picked up in October after September’s slow rate. The jobs report for October will be released on Friday.

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Modern Campground

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