The Federal Reserve adjusted its view of the US economic recovery, but kept interest rates close to zero and showed no signs of withdrawal of support for the economy.
At the end of a two-day meeting, officials noted the improvement in the labor market and presented a better picture than in March.
“Amid advances in vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most affected by the pandemic remain weak, but are improving, ”said the Federal Open Market Committee.
The Fed continued to say that the path of the economy “depends to a large extent on the course of the virus” and the public health crisis created “risks” to the economic outlook. In March, however, the US central bank described the pandemic risks as “significant” – an adjective that was removed on Wednesday.
The Fed maintained its extremely lenient monetary policy. It kept the Federal Funds rate, the main interest rate, at its target range between 0 and 0.25 percent and said it would continue to buy $ 120 billion in debt per month.
The Fed has set the bar high to begin slowing the pace of its asset purchases, saying it needs to make “substantial further progress” toward its goals of full employment and an average of 2 percent inflation in the United States. over time. The US labor market still has 8.4 million jobs below pre-pandemic employment levels, and while inflation is expected to rise in the coming months, Fed officials do not expect it to continue.
In its statement on Wednesday, the central bank acknowledged that inflation had risen, but reiterated that this “largely” reflected “temporary factors”.
In a press conference following the release of the statement, Jay Powell, Fed chairman, said it was too early to start talking about winding down asset purchases. “Economic activity and recruitment has recently picked up again after a slowdown over the winter, and it will be some time before we see substantial further progress.”
US stocks rose as Powell spoke, with the S&P 500 holding up previous losses by 0.3 percent. Long-term government bonds also rose, causing interest rates to drop. The return on the benchmark 10-year Treasury 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 to monetary policy, investors have begun to speculate when the central bank could be forced to withdraw its support.
Eurodollar futures, a measure of interest rate expectations, now indicate that the Fed will hike interest rates in early 2023, nearly a year ahead of suggested by the latest central bank forecast, released in March.
Some market participants believe the Fed could start talking about winding down its asset purchases as early as June, while others expect it to wait until the second half of this year.
“[Fed] the policy is currently on autopilot because it is not until you arrive in October, November, December that you get price data that makes you feel comfortable is informative about the current trend of inflation, ”said Jason Thomas, Head of Global Research at The Carlyle Group.