Last Wednesday, the U.S. Federal Reserve declared it will not raise interest rates or stop buying $120 billion a month of government bonds and mortgage-backed securities any time soon, although the central bank sees a stronger economy emerging.
“We will continue to provide the economy the support that it needs for as long as it takes,” Fed chair Jerome Powell said at a 17 March news conference after the most recent meeting of the bank’s open market committee.
“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the committee said in a statement following its meeting.
“The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”
The Fed wants to see “actual progress, not forecast progress” before changing its strategy, Powell said.
The Fed’s unchanged policies “will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” he said in comments quoted by the Wall Street Journal.
The central bank’s steadiness reflects its commitment to seeing the economy attain maximum employment and a sustained 2-percent inflation rate, Powell added.
The Fed now wants to see “inflation moderately above 2 percent for some time” before raising benchmark interest rates,” he explained.
A “transitory” rise in prices would not alter the bank’s policy,” Powell added.
“The economy is a long way from our employment and inflation goals and is likely to take some time for substantial further progress to be achieved,” he reiterated.
TREND FORECAST: As we have long noted, there is nothing new in the Fed’s announced money-pumping policy. It will do all it can to keep ultra-cheap money flowing into the system. Thus, inflation will increase as will safe-haven assets.
TRENDPOST: Three months ago, 18 Fed officials polled estimated that an interest rate increase would be appropriate in 2024. Now, seven of the 18 foresee a hike in 2023, and four think one will be needed in 2022, based on the economy’s accelerating strength.
Inflation will be paced at 2.4 percent this year, the bank thinks, instead of the 1.8 percent it forecast in December, and will average 2.2. percent in 2022.
The Fed predicts the U.S. GDP will expand 6.5 percent this year, no longer the 4.2 percent it forecast in December. Unemployment will fall to 4.5 percent this year, compared to the 5 percent called for in the bank’s outlook at the end of 2020.
