The Federal Reserve is committed to fully supporting the U.S. economy during the hardships caused by the COVID-19 pandemic and working towards its goals of maximum employment and price stability.
According to the Federal Open Market Committee’s April meeting statement, the Fed will continue to help support the flow of credit to households and businesses by keeping interest rates near zero and expanding purchases of U.S. Treasury and mortgage-backed securities.
The statement also noted that the rise in inflation is temporary, due to transitory factors. What does that mean for you? Let’s rewind.
April 2021 FOMC Rewind
Quick explainer for the April FOMC decision (video, 1:23 minutes)
Transcript
Sean: Hi Noah! What’s new at the Fed?
Noah: They’re keeping interest rates close to 0%.
Sean: So do they think things are getting better?
Noah: Yeah! They say the economy is getting stronger. That has a lot to do with vaccinations helping people feel like they can go out.
Sean: I thought I saw something about inflation on Twitter – did the Fed say anything?
Noah: Yes, they said inflation has risen a little, but it’s mainly from what they call “transitory factors.”
Sean: What does that mean?
Noah: First, it’s about how inflation is measured from one year to the next. Since prices dropped last April, measuring prices now against prices then is going to show a big increase… Then there’s “temporary supply effect.”
Sean: What’s that?
Noah: Since business was really slow for the past year, stores had to save money. And one way was to not keep as much on their shelves. Now that people are out shopping more, stores have to restock, which will make prices higher for a little while.
Sean: Hmm why only a little while?
Noah: Because once stores get enough supply, prices will come back down.
Sean: Okay. So is the Fed worried?
Noah: Not now, because a temporary increase doesn’t mean higher inflation is going to stick. And prices should naturally rise over the long run in a healthy economy.
Sean: Ahh got it. Thanks for helping me figure that out!
Noah: Any time—see ya!
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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.