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Fed notes improving economy, a step toward easing support

The Fed’s latest policy statement on Wednesday comes as the economy is sustaining a strong recovery from the pandemic recession.
A screen in a booth on the floor of the New York Stock Exchange shows the rate decision of the Federal Reserve, Wednesday, July 28, 2021. The Federal Reserve said Wednesday that the U.S. economy is strengthening and making progress on the Fed's employment and inflation goals, a small step toward dialing back its ultra-low-interest rate policies.
A screen in a booth on the floor of the New York Stock Exchange shows the rate decision of the Federal Reserve, Wednesday, July 28, 2021. The Federal Reserve said Wednesday that the U.S. economy is strengthening and making progress on the Fed's employment and inflation goals, a small step toward dialing back its ultra-low-interest rate policies. [ RICHARD DREW | AP ]
Published Jul. 28

WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy is strengthening and making progress on the Fed’s employment and inflation goals, a small step toward dialing back its ultra-low-interest rate policies, perhaps later this year.

The statement the Fed issued after its latest policy meeting said that ongoing vaccinations were helping the economy. But it dropped a sentence it had included after its previous meeting that said those vaccinations have reduced the spread of COVID-19. That was the only reference in its statement to the delta variant that has caused a spike in COVID cases in several hotspots in the United States and many other countries.

The central bank said it’s keeping its benchmark short-term rate pegged at nearly zero, where it has remained since the pandemic tore through the economy in March 2020. The Fed is also buying $120 billion in Treasury and mortgage bonds each month — purchases that are intended to lower rates on longer-term consumer and business loans to spur more borrowing and spending.

The Fed’s latest policy statement comes as the economy is sustaining a strong recovery from the pandemic recession, with solid hiring and spending. But it also coincides with uncomfortably high inflation and concerns about the spread of the delta variant.

In its statement, the central bank added a mention that the economy has made progress in recent months toward its goals of maximum employment and price stability, which the Fed defines as average annual inflation of 2 percent. This could be an early hint that the policymakers will start art reducing — or “tapering,” in Fed parlance — their monthly bond purchases later this year.

The economy’s widespread improvement is a key reason why Chair Jerome Powell and other Fed policymakers are believed to be moving closer toward pulling back their economic support. Consumer prices jumped 5.4 percent in June from a year ago, the biggest increase in 13 years. And a separate inflation gauge the Fed prefers has risen 3.9 percent in the past year.

By Christopher Rugaber, AP Economics Writer