Fed "Economic Uncertainty Remains"‥Regional Fed Presidents Say "Rate Hikes Difficult"

Beige Book Assesses Economic Activity as Modestly Increasing Amid Persistent Uncertainty
New York Fed President Says "No FOMC Rate Hikes Expected for the Time Being"

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The United States Federal Reserve (Fed) assessed on the 2nd (local time) that economic activity in the U.S. is showing a moderate increase, but uncertainties remain. Presidents of major regional Federal Reserve Banks forecast that maintaining zero interest rates for a long period is inevitable, and although an average inflation targeting system has been introduced, it is expected to be difficult for inflation to exceed 2%.

In the Beige Book, a report on economic trends released that day, the Fed stated, "Economic activity is increasing in most regions, but the level of increase is generally moderate and much lower than before the COVID-19 pandemic."

The Fed expressed concern that "ongoing uncertainties and volatility related to the pandemic, as well as negative impacts on consumer and business activities, are resonating across the United States."

The report pointed out that labor market recovery is progressing unevenly across industries and regions.

The Fed said, "Some regions reported a slowdown in employment growth and increased employment uncertainty," adding, "Especially in the service sector, the number of workers on unpaid leave being permanently laid off due to weak demand is increasing."

Poor employment conditions are also confirmed by indicators. On the same day, private research firm Automatic Data Processing (ADP) announced that the number of new private sector jobs in August was 428,000. This is less than half of the market expectation of 1.17 million jobs compiled by Dow Jones. The number of new jobs in July was 212,000.

This is interpreted as a sign that the resurgence of COVID-19 has turned on a red light for employment expansion.

ADP Vice President Ahu Yildmaz explained, "Job growth is minimal. Regardless of sector and company size, job recovery to pre-COVID-19 levels has not been achieved."

The Beige Book evaluates the trends in the 12 Federal Reserve Bank districts and serves as basic material for the FOMC regular meetings.

"It is difficult to even consider a rate hike" "Inflation exceeding 2% would be welcomed"

Along with the Beige Book release, presidents of regional Federal Reserve Banks unanimously expressed the view that an early rate hike is difficult.

John Williams, President of the New York Fed and Vice Chair of the Federal Open Market Committee (FOMC), said, "It will be a long time before a rate hike becomes a topic at FOMC meetings."

He explained, "The Fed does not need to act preemptively on inflation now, and it is currently desirable for inflation to exceed 2%."

Regarding the average inflation targeting system, he said, "The new framework is an important evolution in thinking about how the Fed will achieve its goals and another step toward greater transparency," adding, "This change can bring success in achieving the goals of maximum employment and price stability in the future."

Loretta Mester, President of the Cleveland Fed, also said, "A full economic recovery will take about two years." She analyzed, "The economy faces more downside risks than upside risks." Recent economic indicators show a slowdown in recovery, and the recovery remains fragile.

President Mester predicted, "The second quarter was the deepest point of the recession, and although the economy will grow in the second half, the U.S. economy will contract in 2020," adding, "By the end of the year, we will see unemployment rates in the high single digits."

President Mester also expected, "It will take considerable time for inflation to return to 2%, and under the new policy framework, inflation will not be allowed to run unchecked."