Fed to discuss a pullback in economic aid with inflation up

WASHINGTON (AP) — With inflation uncomfortably high and the COVID-19 Delta variant raising economic concerns, a divided Federal Reserve will meet this week to discuss when and how it should dial back its ultra-low-interest rate policies.

For now, the U.S. economy is growing briskly in the wake of the pandemic recession, and the pace of hiring is healthy, which is why the Fed's policymakers will likely move closer toward acting soon. In particular, the officials are expected to discuss the timing and mechanics of slowing their $120 billion-a-month in bond purchases — a pandemic-era policy that is intended to keep long-term loan rates low to spur borrowing and spending.

This week's meeting occurs against the backdrop of a risky policy bet by Fed Chair Jerome Powell. Powell is gambling that the central bank can engineer an exceedingly delicate task: To keep the Fed's short-term benchmark rate pegged near zero, where it has been since March 2020, until the job market has fully healed, without fueling a sustained bout of high inflation.

Yet the stakes around that bet are rising, with consumer prices having jumped 5.4% in June from a year ago, the biggest increase in 13 years. Last month's surge marked a fourth straight month of unexpectedly large price increases, heightening fears that persistently higher inflation will erode the value of recent pay raises and undermine the economic recovery.

The main concern is that the Fed will end up responding too late and too aggressively to high inflation by quickly jacking up interest rates and perhaps causing another recession. Last week, Republicans in Congress peppered Powell with questions about inflation, for which they largely blamed President Joe Biden's $1.9 trillion stimulus package, which was enacted in March.

In his testimony, Powell largely stood by his view that...