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The Federal Reserve improved its vision of the American economic recovery, but kept interest rates close to zero and showed no signs 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 brighter picture than in March.
“Amid progress in vaccinations and strong political support, indicators of economic activity and employment have been strengthened. The sectors most affected by the pandemic remain weak, but they have improved, “the Federal Open Market Committee said.
The Fed went on to say that the path of the economy “would depend significantly on the course of the virus” and that the public health crisis created “risks” for the economic outlook. However, in March, the US central bank described the pandemic risks as “considerable”- an adjective he removed on Wednesday.
The Fed maintained its ultralight monetary policy. He kept the federal funds rate, his main interest rate, between 0 and 0.25 percent and said he would continue to buy debts of $ 120 billion a month.
The Fed has set a high bar to start slowing its asset purchases, saying “substantial progress” should be made toward its full-employment targets and inflation averaging 2% over the long term. of time. The US labor market is still 8.4 million jobs below pre-pandemic employment levels, while inflation is it is expected to increase in the coming months, Fed officials do not expect it to hold.
In its statement on Wednesday, the central bank acknowledged that inflation had risen, but reiterated that it “largely reflected” the “transitional factors”.
At a press conference following the release of the statement, Fed Chairman Jay Powell said it was too early to start talking about reducing asset purchases. “Economic activity and recruitment have increased recently after slowing in the winter, and it will be some time before we see substantial progress.”
US stocks rose as Powell spoke, with the S&P 500 recording previous losses of up to 0.3%. They also won the long-standing Treasures, which produced lower yields. The 10-year benchmark Treasury yield was around 1.61%, after trading above 1.65% before the start of the press conference.
Despite assurances from Fed officials that they would take a “patient” approach when it comes to proposing changes to their monetary policy, investors have begun to speculate when the central bank might be forced to withdraw its support.
Eurodollar futures, a measure of interest rate expectations, now indicate that the Fed will raise rates in early 2023, almost a year earlier than the latest central bank forecasts, released in March, suggest.
Some market participants believe the Fed could start talking about delaying its asset purchases as early as June, while others expected it to stop until the second half of this year.
“[Fed] the policy is on autopilot right now, because it’s really not until you get to october, november and december that you start getting data on prices that you feel comfortable with, it’s informative about the current trend in inflation, ”he said Jason Thomas, world head of research at The Carlyle Group.
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