By Yasin Ebrahim
Investing.com - The Federal Reserve kept interest rates steady on Wednesday, and hinted that it would be keeping a closer eye on progress toward its threshold to start tapering monthly bond purchases at upcoming meetings.
The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25% and said it would continue its $120 billion monthly bond purchases.
The Fed has faced calls from within its ranks to bring forward the timeline on tightening monetary policy in the wake of rising inflation. Those calls appear to be hitting home as the Federal Reserve indicated that it will be keeping a closer eye on the economic progress needed to begin trimming its bond purchases.
"Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals.," The Fed said in its statement. "Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings."
"[FOMC] participants expected that economy will continue to move our standard of substantial further progress [...] the timing and change of our asset purchases will depend on incoming data," Powell said in a press conference. "We have some ground to cover on the labor market side," Powell said, in response to a question to elaborate on substantial further progress.
A recovery in the labor market appears to be at the heart of the Fed’s taper threshold. But sentiment on the recovery in the labor market and broader market has suffered a blow with the resurgence in Covid-19 cases brought on by the delta variant and a slowing vaccination rates.
The Fed doesn't appear to be as fixated as some on Wall Street concerning the economic impact from rising U.S. Covid-19 cases nor the slowing vaccination rates. "Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain," the Fed said.
"We don't have a strong sense how that [Delta variant] will work out, [but] there has been less economic implications from each Covid wave. [W]e will continue to monitor it carefully," Powell said.
Goldman Sachs (NYSE:GS) recently downgraded its U.S. growth forecasts, estimating a deceleration over the next year and a half that would see the U.S. economy return to expansion of 1.5% to 2% in the second half of next year.
Powell continued to downplay inflation concerns, saying that the overshoot in inflation above the Fed's 2% target can be tied to "handful of categories," and reiterating that inflation "should move down over time."