The Federal Reserve has revised its vision for the US economic recovery, but has kept interest rates close to zero and has shown no sign of withdrawing support for the economy.
At the end of a two-day meeting, officials noted the improvement in the labor market and offered a clearer picture than they did in March.
“Amid progress in vaccinations and strong political support, economic activity and employment indicators have strengthened. The sectors most affected by the pandemic remain weak but have shown improvement, ”said the Federal Open Market Committee.
The Fed continued to say that the trajectory of the economy “would depend considerably on the evolution of the virus” and that the public health crisis created “risks” to the economic outlook. However, in March, the US central bank called the pandemic risks “considerable” – an adjective it deleted on Wednesday.
The Fed maintained its super-easy monetary policy. He kept the federal funds rate, his main interest rate, at its target range of 0% to 0.25% and said he would continue to buy $ 120 billion in debt per month.
The Fed has set the bar high to start slowing down the pace of its asset purchases, saying “further substantial progress” should be made towards its targets of full employment and inflation of 2% on average over time. . The U.S. labor market is still 8.4 million jobs below its pre-pandemic employment levels, and while inflation is expected to rise in the coming months, Fed officials are failing to not expect it to hold.
In its statement on Wednesday, the central bank acknowledged that inflation had risen, but reiterated that this “largely” reflected “transitional factors”.
At a press conference after the statement was released, Fed Chairman Jay Powell said it was too early to start talking about reducing asset purchases. “Economic activity and hiring have recently picked up after slowing down over the winter, and it will be some time before we see further substantial progress.”
US stocks rose as Powell spoke, with the S&P 500 cutting past losses to rise 0.3%. Long-term Treasuries gained as well, pushing yields lower. The benchmark 10-year Treasury yield hovered around 1.61 percent, after trading above 1.65 percent before the press conference began.
Despite assurances from Fed officials that they would take a “patient” approach when considering changes in its monetary policy, investors began to speculate on when the central bank might be forced to start withdrawing its policy. support.
Eurodollar futures, a measure of interest rate expectations, now indicate that the Fed will hike rates by early 2023, almost a year earlier than suggested by the latest forecast from central bank, published in March.
Some market participants believe the Fed could start talking about cutting back on asset purchases as early as June, while others expect it to hold until the second half of this year.
“[Fed] policy is on autopilot right now, as it’s really only when you arrive in October, November, and December that you start to get price data that you’re comfortable with that is informative about the current inflation trend, ”said Jason Thomas, head of global research at The Carlyle Group.