The Federal Reserve made no changes to record low interest rates Wednesday, noting that the path to a sustained economic recovery "depends of the course" of the coronavirus and the pace of vaccinations.
Fed Chairman Jerome Powell also said the pace of the central bank's monthly bond purchases would remain unchanged at $120 billion per month, and pledged to hold its accommodative policies in place until the job market has reached full employment and inflation exceeds its target "for some time."
Powell did note, however, that the economy has made some progress towards those goals, opening a tiny sliver of possibility that the Fed could begin tapering bond purchases later this year.
"With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen," the Fed said. "The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. Inflation has risen, 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," the statement added. "Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain."
U.S. stocks traded modestly higher following the Fed statement, with the S&P 500 up 4 points on the session and the Dow Jones Industrial Average paring its decline to around 95 points.
Benchmark 10-year notes held at 1.264% while the U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.26% higher on the session at 92.691.
Inflation is running at the hottest levels since 2008, with June CPI surging 5.4% from last year on the strength of big price increases in used cars and travel costs. So-called core inflation, which strips-out volatile components such as food and energy prices, rose 4.5% the highest since the early 1990s.
There are some indications that the higher levels of inflation are crimping growth prospects, as well, with several companies, including packages consumer products groups Unilever and Reckitt Benckiser, warning investors of profit margin erosion as a result.
Still, June retail sales surged 0.6% on the month, to a collective $621.3 billion, and weekly jobless claims have been largely moving lower over the past three months as employers bring back staff from pandemic-induced furloughs and layoffs.