# Fed says U.S. economic recovery on track despite COVID-19 surge
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-07-28
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Fed Expresses Confidence in U.S. Economic Recovery Amid
Meta Description: Despite uptick in COVID cases, Federal Reserve remains optimistic about economic progress & discusses monetary policy support withdrawal in the near future.
URL: https://financedigest.com/fed-says-u-s-economic-recovery-on-track-despite-covid-19-surgehtml

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By Howard Schneider, Lindsay Dunsmuir and Ann Saphir

WASHINGTON (Reuters) -The U.S. economic recovery remains on track despite a rise in coronavirus infections, the Federal [Reserve said on Wednesday in a new policy statement that remained upbeat and flagged ongoing talks](https://www.financedigest.com/u-s-money-reserve-reviews-real-talk-about-diversifying-with-precious-metals.html "U.S. Money Reserve Reviews: Real Talk About Diversifying With Precious Metals") around the eventual withdrawal of monetary policy support.

In a news conference following the release of the statement, [Fed Chair Jerome Powell](https://www.financedigest.com/dollar-edges-lower-as-investors-wait-on-feds-powell.html "Dollar edges lower as investors wait on Fed’s Powell") said the U.S. [job market still had “some ground to cover” before it would be time](https://www.financedigest.com/britains-purplebricks-to-cut-more-than-10-of-jobs-the-times.html "Britain’s Purplebricks to cut more than 10% of jobs – The Times") to pull back from the economic support the U.S. central [bank put](https://www.financedigest.com/boes-bailey-says-rate-setters-can-put-inflation-before-bank-worries.html "BoE’s Bailey says rate-setters can put inflation before bank worries") in place in the spring of 2020 to battle the coronavirus pandemic’s economic shocks.

I would want to see some strong job numbers” in [coming months before reducing the $120 billion in monthly bond](https://www.financedigest.com/analysis-watch-out-risk-assets-the-rout-in-bonds-is-coming-your-way.html "Analysis-Watch out risk assets, the rout in bonds is coming your way") purchases the Fed continues to make, he told reporters.

But Powell also set aside, at least for now, the risk that the renewed spread of the coronavirus through its more infectious Delta variant would put the [recovery at risk or throw the Fed](https://www.financedigest.com/wage-data-dents-dollar-recovery-before-fed-rate-decision.html "Wage data dents dollar recovery before Fed rate decision") off track as it plans an exit from crisis-era policies.

“It will have significant health consequences” in the areas of the country where outbreaks are intensifying, Powell said. But in the prior waves of coronavirus infections “there has tended to be less in the way of [economic implications](https://www.financedigest.com/the-politics-economics-and-investment-implications-of-brexit.html "The politics, economics and investment implications of Brexit") … It is not an unreasonable [expectation” that would remain](https://www.financedigest.com/phenolic-resins-market-is-expected-to-remain-steady-and-grow-with-a-cagr-value-of-4-in-the-forecast-period.html "Phenolic Resins Market is expected to remain steady and grow with a CAGR value of ~4% in the forecast period") the case this time, he added.

The [Fed’s policy](https://www.financedigest.com/asian-shares-rise-dollar-dips-ahead-of-fed-policy-decision.html "Asian shares rise, dollar dips ahead of Fed policy decision") statement, issued after the end of a two-day policy meeting, reflected that confidence.

With progress on vaccinations and strong policy support, indicators of [economic activity and employment have continued](https://www.financedigest.com/different-employee-engagement-outcomes-for-u-s-and-canadian-companies-amidst-continued-economic-growth-pressures.html "DIFFERENT EMPLOYEE ENGAGEMENT OUTCOMES FOR U.S. AND CANADIAN COMPANIES AMIDST CONTINUED ECONOMIC GROWTH Pressures") to strengthen,” the central bank said in the statement.

Looking past the quadrupling of daily U.S. coronavirus infections that has occurred since the Fed last met in June, the central [bank indicated it still had faith that an ongoing vaccination drive would “reduce the effect of the public health crisis](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded") on the economy” and allow a robust reopening to proceed.

Fed policymakers, in a unanimous statement, also said they were moving ahead with discussions about when to reduce the central bank’s bond-buying program, a precursor to eventually [raising interest rates](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked").

In December, the Fed said it would not change those purchases until there had been “substantial further progress” in repairing a [labor market that was then 10 million jobs](https://www.financedigest.com/u-s-job-growth-surges-in-july-as-labor-market-defies-recession-fears.html "U.S. job growth surges in July as labor market defies recession fears") short of where it was before the pandemic.

That number is now below 7 million, and the Fed for the first time acknowledged the economy had taken a step towards its benchmark for reducing the [$80](https://www.financedigest.com/bis-warns-of-80-trillion-of-hidden-fx-swap-debt.html) billion in U.S. Treasury bonds and $40 billion in mortgage-backed securities it [buys each month to keep long-term borrowing costs](https://www.financedigest.com/blessing-or-burden-what-else-could-you-buy-for-the-cost-of-your-timeshare.html "Blessing or burden? What else could you buy for the cost of your timeshare?") low for consumers and businesses.

The economy has made progress, and the (Federal Open Market) Committee will continue to assess progress in coming meetings,” the Fed said in language pointing towards a possible reduction in [bond purchases](https://www.financedigest.com/bank-of-england-statement-on-purchase-of-long-dated-bonds.html "Bank of England statement on purchase of long-dated bonds") later this year or early in 2021.

The [Fed also said that higher](https://www.financedigest.com/asia-shares-creep-higher-wary-on-fed-and-boj-outlooks.html "Asia shares creep higher, wary on Fed and BOJ outlooks") inflation remained the result of “transitory factors,” meaning it was not an imminent risk.

‘MORE UPBEAT’

Along with leaving its bond-buying program unchanged, the central bank on Wednesday kept its overnight benchmark [interest rate](https://www.financedigest.com/ecbs-centeno-says-interest-rate-close-to-peaking-if-no-new-shocks.html "ECB’s Centeno says interest rate close to peaking if no new shocks") near zero.

Karim Basta, chief economist at III Capital Management, said the “incrementally more upbeat” policy statement [opened the door](https://www.financedigest.com/lack-of-electric-vans-opens-door-for-chinese-other-ev-makers.html "Lack of electric vans opens door for Chinese, other EV makers") to a September bond taper announcement if job growth comes in strong and the coronavirus caseload does not dent spending.

Acknowledging some progress towards their goals “seems designed to give them the option to announce” a change in [bond purchases as soon](https://www.financedigest.com/ecb-could-slow-rate-hikes-but-bond-run-off-should-start-soon-knot-says.html "ECB could slow rate hikes, but bond run-off should start soon, Knot says") as September, he wrote.

U.S. [stocks](https://www.financedigest.com/mutual-funds-vs-stocks-which-is-better.html "stocks"), modestly lower before the release of the policy statement, were mostly higher in late-afternoon trading. Yields on U.S. [Treasuries edged up in choppy](https://www.financedigest.com/u-s-stock-markets-treasury-yields-perk-up-oil-falters-as-choppy-week-winds-down.html "U.S. stock markets, treasury yields perk up, oil falters as choppy week winds down") trading. The [dollar was slightly weaker against a basket of currencies](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades").

The Fed did not [release any new economic projections](https://www.financedigest.com/global-blockchain-project-fermat-announces-significant-alpha-release-for-the-internet-of-people.html "Global Blockchain Project FERMAT Announces Significant Alpha Release for the “Internet of People”") on Wednesday.

(Reporting by Howard Schneider and Jonnell MarteEditing by Paul Simao)


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