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Market news

28 September 2021

Fed Chairman Powell's testimony: Inflation is elevated and will likely remain so in coming months before moderating

  • Growth is widely expected to continue at strong pace in H2
  • Sectors most adversely affected by the pandemic have improved in recent months, but rise in COVID-19 cases has slowed their recovery
  • Demand for labor is very strong, and job gains averaged 750,000 per month over past three months
  • In August, however, gains slowed markedly; unemployment rate was 5.2 percent, and this figure understates shortfall in employment, particularly as participation in labor market has not moved up from low rates that have prevailed for most of past year
  • Factors related to the pandemic, such as caregiving needs and ongoing fears of the virus, appear to be weighing on employment growth; these factors should diminish with progress on containing the virus
  • As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors; these effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2% goal
  • If sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal
  • Path of economy continues to depend on course of the virus, and risks to outlook remain
  • In response to crisis, we took broad and forceful measures to support flow of credit in economy and to promote stability of financial system at onset of the pandemic
  • Fed completed its sales of assets from Secondary Market Corporate Credit Facility on August 31; we were able to wind down the facility rapidly and efficiently, with no adverse impact on credit conditions
  • Fed also recently closed Paycheck Protection Program Liquidity Facility to new lending, and facility is now in runoff mode
  • Similarly, we are managing paydown of assets in our other CARES Act facilities as they wind down over time
  • We will do all we can to support the economy for as long as it takes to complete the recovery

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