US Fed Chairman Jerome Powell
US Fed Chairman Jerome Powell

The US Federal Reserve held interest rates near zero as the economic recovery continues amid growing concerns over inflation surge. However, it signalled it might raise interest rates at a much faster pace than assumed, Reuters said.

“Progress on vaccinations has reduced the spread of COVID-19 in the United States," the Federal Open Market Committee said in a statement released Wednesday following the conclusion of its two-day policy meeting. “Amid this progress and strong policy support, indicators of economic activity and employment have strengthened."

Fed chairman Jerome Powell released forecasts that show they anticipate two interest-rate increases by the end of 2023 and they upgraded estimate for inflation for the next three years, Bloomberg said.

The Fed noted that the sectors most adversely affected by the pandemic "remain weak but have shown improvement".

With inflation having run persistently below the 2 percent longer-run goal, the Federal Open Market 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 Fed reiterated, acknowledging that inflation has risen, "largely reflecting transitory factors."

The Fed's statement came days after the Labour Department reported that consumer prices rose 0.6 percent in May, with a 12-month increase of 5.0 percent, marking the largest 12-month increase since the period ending August 2008.

Excluding the volatile food and energy categories, the so-called core consumer price index (CPI), the Fed's preferred inflation measure, rose 0.7 percent in May, following a 0.9 percent increase in April.

The index for all items excluding food and energy rose 3.8 percent over the last 12 months, the largest increase since the period ending June 1992, according to the Labour Department.

The central bank also pledged to continue its asset purchase program at least at the current pace of $120 billion per month until the economic recovery makes "substantial further progress".

Despite that, economists and analysts had predicted that Fed officials could begin debate on tapering the Fed's monthly asset purchases as soon as this week's policy meeting, but the central bank is unlikely to publicly reveal that plan until August or September.

(With IANS inputs)

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