Federal Reserve Keeps Rates Near Zero, Still Sees Inflation As ‘Transitory’

The Federal Reserve said Wednesday it would keep interest rates near zero and asset purchases at $120 billion a month. 

Earlier in July, Fed Chairman Jerome Powell told Congress that the central bank is not comfortable with inflation well above 2% where it is now but noted that the price increases in used vehicles, airline tickets and hotels seem to be temporary. 

“Inflation has risen, largely reflecting transitory factors,” the Fed said in a statement after the conclusion of the two-day, closed-door meeting.

While pressure has been mounting for the central bank to taper its asset purchases, Powell has often reiterated that the bank’s quantitative easing (QE) program advances its commitment to maximum employment. 

QE discourages a flight to safety and lowers the yields on risk assets by lowering risk-free yields in other ways, said Steven Kelly, a research associate at the Yale Program on Financial Stability, an initiative focused on understanding financial crises. Encouraging more risky borrowing has a positive effect on employment, Kelly added. 

The committee did note that the economy has made progress towards its goals and that “the Committee will continue to assess progress in coming meetings.” This could point to tapering in the near future if the economy continues towards the central bank’s recovery goals.

This is a developing story and will be updated.



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