The recent rise in inflation is likely to be “transitory,” or so Chairman of the Fed Jerome Powell said. With many sectors finally in recovery mode and set-on reopening, the Federal Reserve is holding interest rates from eclipsing the 0.25% range for now.
The Fed had a very pessimistic outlook on the economy prior to vaccines being rolled out, but then again, probably only the Industrial sector was optimistic by that point. Interest rates experienced a slight upward trend during the first quarter of 2021, although it is still closer to zero than in years passed. The rise was attributed to economic optimism however they stabilized going into April, and will likely not rise as long as inflation doesn’t increase too rapidly.
“There has been some worry among investors and economists that inflation might become a problem, as estimates currently indicate that prices are set to exceed the Fed’s 2% target in coming months. The Fed acknowledged that inflation has risen, another shift in tone, but stated that the increase is likely to be “transitory.”CoStar News
The rising inflation is predicted to not be permanent. Powell described the state of the economy as being in a ‘inflection point,’ meaning it’s about to experience a great spike in productivity as it accelerates and shifts from a downward to upward trajectory. Although The Fed did not have a fresh “Statement of Economic Projections” at its recent meeting, but such language—about being at an inflection point—prompts people who closely follow to believe The Fed have an optimistic economic outlook.
“At his post-meeting press conference, Powell said that the committee needs to see “substantial further progress” in the economy and labor markets before it considers dialing back monetary policy support, including asset purchases. Powell noted that slack still remains in the labor market…”
Many aspects of the economy are seemingly operating in normal fashion now that the number of vaccinated people exceeds 100 millions in the U.S. California, the most populous state in the country reported no new deaths due to COVID-19 on Monday. However, only a fraction of entities are actually choosing to open during this period of ‘recovery.” Many companies that spent a good portion of their budget reassessing square-footage for hygiene and social distancing, won’t reopen until the pandemic is lifted.
In short, there is mostly an optimistic feeling about the economy and its state of recovery mainly because it wasn’t as bad as The Fed predicted it would be, a year ago.