— This is the script of CNBC's news report for China's CCTV on (MONTH) (DAY), (YEAR), (DAY OF THE WEEK).
Overall, the FOMC decision came in line with market expectations. It provided some support for the stock market, yet the three major indices closed mixed due to concerns about the spread of the Delta variant. Investors paid special attention to two issues from Fed chair Powell's statements.
Powell said that the U.S. economy is progressing toward the Fed's dual-goal on inflation and employment, but it isn't strong enough to start tapering yet. That means that the Fed has started the tapering clock, according to PNC chief economist Gus Faucher. Meanwhile, the market is surprised that the Fed doesn't seem to be overly concerned about the surging infections from the Delta variant. According to him, the economic impact of new waves will be limited. But he did admit that the spread may bring pressure to the labor market and the Fed is closely monitoring that. And as to inflation, Powell kept his view that it is transitory and the upward trend will stop at some time.
Jerome Powell
Chair of the Federal Reserve of the United States
"As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly because supply bottlenecks in some sectors have limited how quickly production can respond in the near term. These bottleneck effects have been larger than anticipated, but as these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal."
Many market participants don't share Powell's view. Ken Langone, a billionaire investor and the founder of Home Depot, says in an interview with CNBC that he doesn't think inflation is going to be transitory, citing concerns about employment conditions and rising wages. Unlike commodities prices that often go up and down, salaries can hardly go lower once raised, argues him.
And we mentioned in our previous report that the increase of hourly payment is still below inflation in the United States, though higher than the pre-pandemic levels. The labor participation rate remains to stagnate in the U.S. Several surveys find that one of the key measures to lure the unemployed or quitted back to the labor market is to pay a higher salary.
Ken Langone
Home Depot Co-founder
"Everybody's talking about paying people more money. The politicians are all saying, Oh, you got a problem. You can't hire people, Biden says, pay them more money. We have a phenomenal shortage in labor in America today. "
A survey conducted by job-hunting platform Glassdoor in March showed that over half (54%) Americans planned to ask for a salary hike or better perks in the next 12 months, which may further increase company costs and eventually translate into higher inflation. Another factor that's been holding people back from returning to work is the concerns over safety amid the pandemic.
The CDC revised its suggestion to ask fully-vaccinated people in Covid hotspots to wear masks indoors. Tech giants Apple and Google both postponed their plans to bring employees back to the office and required all to get fully vaccinated before returning.
That being said, the Fed's monetary policy will be largely driven by the recovery of the labor market amid the pandemic. Powell himself said that he needs to see strong job numbers before considering raising interest rates or dialing back Fed's purchase program.