Federal Reserve Will Continue Supporting The Economy Despite Surging Prices

The Federal Reserve will continue to support the economy despite a sharp jump in consumer prices.

The central bank said Wednesday it would leave interest rates near zero and maintain its aggressive program of bond purchases in hopes of encouraging a faster recovery from the pandemic recession.

“The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time,” the Fed said in a statement.

Fed officials did raise their forecast for inflation this year, but the central bank continues to predict a return to more stable prices next year.

Participants in the Fed’s policy meeting predicted prices would be 3.4% higher at the end of this year than in 2020 — up from the 2.4% inflation rate they were forecasting three months ago. In 2022, inflation is projected to be 2.1%, barely above the March forecast.

The Labor Department, which uses a different measure of consumer prices, said last week inflation reached 5% for the 12-month period ending in May — the sharpest jump in nearly 13 years.

The Fed believes that the spike in prices is likely to be temporary, though, as businesses race to catch up with surging demand from newly vaccinated consumers.

The Fed is willing to tolerate higher inflation for a period of time in hopes of putting more people back to work. There are still 7.6 million fewer jobs in the U.S. than there were before the pandemic.

Still, the Fed now anticipates raising rates sooner than it did three months ago.

Seven members of the rate-setting committee now expect some rate hike next year — up from four who anticipated that in March. Thirteen of the 18 committee members expect a rate hike in 2023 — up from seven who thought so three months ago.

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