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Fed To Discuss Cutting Back On Low Interest Rates Amid COVID-19 Surge, Inflation

The Federal Reserve is planning to meet this week to discuss when and how it will scale back its low pandemic interest rates, given the economic risks of the Delta variant and high inflation, the Associated Press (AP) reported.

In particular, the Fed is concerned about its timing of slowing the $120 billion-a-month in bond purchases, which the AP reported was implemented during the pandemic in order to keep long-term loan rates low.

Now, Fed Chair Jerome Powell wants to stage a somewhat risky bet and keep the Fed’s short-term benchmark close to zero as it has been since March 2020, while waiting for the job market to fully heal, according to the AP. The goal is not to allow for high inflation for too long.

The economy has been doing well as of late, with many people eager to get out and spend more after a long and stressful 2020, the AP reported. The Fed wants to act soon on rolling back the interest rate changes because the pace of hiring has been good.

However, things could become more difficult. Consumer prices jumped 5.4 percent in June compared to the same time last year, according to the AP. That amounts to the biggest increase in 13 years, and the higher prices could end up undercutting any economic gains by making it harder for people to stay economically afloat.

Powell, in recent testimony, said the high inflation rates would be temporary, and the recent price boosts for used and new cars and hotels, for example, have come from supply shortages as the economy opened very quickly.

PYMNTS reported the economic recovery could be imperiled by a rising number of COVID-19 cases, particularly as the Delta variant becomes prominent. Daily cases have as much as tripled, while hospitalizations have risen by 21 percent in the last 30 days.

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