Jim Lo Scalzo / AP
The Federal Reserve will continue to support the economy despite a sharp rise in consumer prices.
The central bank said on Wednesday it would keep interest rates close to zero and maintain its aggressive bond buying program in hopes of spurring a faster recovery from the pandemic recession.
“The Federal Reserve is committed to using its full range of tools to support the US economy during these difficult times,” the Fed said in a statement.
Fed officials have raised their inflation forecast this year, but the central bank continues to predict a return to more stable prices next year.
Participants at the Fed policy meeting predicted that prices would be 3.4% higher at the end of this year than in 2020 – up from the 2.4% inflation rate that they were planning three months ago. In 2022, inflation is expected to be 2.1%, barely above the March forecast.
The Labor Department, which uses a different measure of consumer prices, said last week that inflation hit 5% for the 12-month period ending in May – the biggest increase in nearly 13 years.
The Fed believes, however, that the price spike will likely be temporary, as businesses rush to catch up with growing demand from newly vaccinated consumers.
The Fed is prepared to tolerate higher inflation for a while in hopes of getting more people back to work. There are still 7.6 million fewer jobs in the United States than before the pandemic.
Yet the Fed is now planning to raise rates soon than it did three months ago.
Seven members of the rate-setting committee now expect a rate hike next year, compared to four who had anticipated it in March. Thirteen of the 18 committee members expect a rate hike in 2023, up from seven who thought three months ago.