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Full Federal Reserve policy statement Sept 22, 2021

(Reuters) – Following is the full statement issued by the Federal Open Market Committee on Sept. 22, 2021:

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress in vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Fed officials tussle over practical meaning of new inflation policy

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) – Federal Reserve policymakers on Friday began fleshing out what their new tolerance for inflation will mean in practice, an issue critical to how investors and households reshape their own outlooks even if it may not be relevant to any immediate decisions by the U.S. central bank.

The new policy, laid out in a strategic document last month and incorporated into a policy statement issued on Wednesday, pledges to keep interest rates near zero until inflation has hit the Fed’s 2% target and is on track “to moderately exceed” it “for some time.”

As it stands, with the coronavirus pandemic sapping demand, leaving millions of Americans unemployed, and threatening the survival of entire industries, inflation is not seen as the core risk. Economic projections released by the Fed this week show inflation only reaching 2% by the end of 2023, with any shift towards tighter monetary policy likely years down the road.

But how the Fed’s new language is interpreted by the central bank’s five current Washington-based governors and 12 regional bank presidents will be central to whether bond markets, stock investors and even consumers see the new approach as likely to be effective, and start behaving in a way that actually helps push inflation higher.

After years of weak inflation, that is the Fed’s hope. It is based on fears of a Japanese-style low inflation rut that can have its own damaging effects over time, and Fed officials on Friday started to outline their views of how to proceed.

Atlanta Fed President Raphael Bostic said, for example, that he’d be paying closer attention to how fast inflation rises rather than to its quarter-to-quarter level in implementing the new approach.

In an interview on Bloomberg Television, Bostic said if inflation went up to 2.3% but appeared stable “that would be fine … By contrast if we were at 2.2 and the next quarter at 2.4 and then at 2.6, that trajectory would give me concern” and perhaps require efforts to cool the economy.

‘GHOST STORIES’

Minneapolis Fed President Neel Kashkari, in contrast, laid out a more open-ended view in written comments describing why he dissented against the rate-setting Federal Open Market Committee’s policy statement on Wednesday.

The Fed, he felt, was setting itself up to make the same mistake it has in the past of reacting too quickly to inflation “ghost stories” and risked nipping off job growth too soon.

He said the Fed instead should switch its focus to core inflation, a slower moving variable that excludes volatile commodity prices, and ensure that it reached 2% on a “sustained basis.”

“I would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives,” of maximum employment consistent with stable prices, Kashkari said in an essay.

A second dissent from Dallas Fed President Robert Kaplan argued the central bank should keep its options open to raise rates sooner if needed – a sign of the broad debate now taking place over just what the new framework will mean in practice.

Critics say they feel the Fed’s new approach rings hollow without strong measures to back it up and produce the higher inflation they seek, such as more aggressive bond-buying.

But St. Louis Fed President James Bullard said inflation may move higher on its own if, as he suspects, the economic recovery gains traction at a time when global supply chains are being reorganized, monetary policy is loose, and governments are issuing record levels of debt to finance pandemic-related spending.

“A lot of people on Wall Street are saying ‘you could not hit 2%, how are you going to have inflation above 2%?,'” Bullard said in webcast remarks to a Washington University in St. Louis forum.

“I think we are at a moment where you may see some inflation … You have got more relaxed central banks … You have got huge fiscal deficits which historically have been a catalyst for inflation. And you have possibly bottleneck-type pressures.”

(Reporting by Howard Schneider and Ann Saphir; Editing by Paul Simao)