“The upside risks to the inflation outlook in the short term have increased,” he said. the United States Federal Reserve (Fed) in its semi-annual Monetary Policy Report released on Friday.
Featured statements
Longer, but probably temporary, upward pressure on inflation comes from commodity prices experiencing supply chain bottlenecks.
Survey-based and market-based measures of longer-term inflation expectations have increased since late last year.
Inflation expectations are in a range that is broadly consistent with the longer-term inflation target.
The Fed institutions at the core of the financial system remain resilient.
Data for the second quarter suggest a further strong increase in demand.
Structural vulnerabilities persist in some types of money market funds and bond and bank loan mutual funds.
Regarding the Fed’s asset purchase program, in future meetings the committee will continue to evaluate the economy’s progress toward targets.
The post-pandemic labor market and peak employment characteristics may be different than in early 2020.
The Fed is prepared to adjust its monetary policy stance accordingly if risks arise.
As the extraordinary circumstances pass, supply and demand should approach equilibrium, and inflation is expected to decline.
The flood of retirements fueled by the pandemic will continue to weigh on labor force participation for some time to come.
Recent readings on inflation expectations indicate that inflation is expected to return to levels consistent with the committee’s long-term inflation target of 2% after a period of temporarily higher inflation.
There is no noticeable effect on the functioning of the treasury market following the expiration in March 2021 of the temporary changes in the supplemental leverage ratio.
The Fed’s CIE index at levels ‘probably more consistent’ with the Fed’s long-term inflation target of 2%.
Most hedge fund leverage measures are now above their historical averages.
Market reaction
The Fed report has little to no impact on the US Dollar Index, as it remains intact in its recovery mode around 92.30, at the time of writing.
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