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Business News/ News / World/  Fed strengthens view of economy while keeping rates near zero
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Fed strengthens view of economy while keeping rates near zero

The Fed said that 'risks to the economic outlook remain,' softening previous language that referred to the pandemic posing 'considerable risks'

Chairman of the Federal Reserve Jerome Powell (AP)Premium
Chairman of the Federal Reserve Jerome Powell (AP)

Federal Reserve officials strengthened their assessment of the economy on Wednesday and signaled that risks have diminished while leaving their policy interest rate near zero and maintaining a $120 billion monthly pace of asset purchases.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the Federal Open Market Committee said in a statement following the conclusion of its two-day policy meeting. “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors."

The Fed said that “risks to the economic outlook remain," softening previous language that referred to the pandemic posing “considerable risks."

Powell and his colleagues met amid growing optimism for the U.S. recovery, helped by widening vaccinations and aggressive monetary and fiscal support. President Joe Biden will unveil a sweeping $1.8 trillion plan to expand educational opportunities and child care when he addresses a joint session of Congress later on Wednesday, while highlighting his $2.25 trillion infrastructure proposal and the $1.9 trillion pandemic relief package he signed into law last month.

At the same time, a rise in coronavirus cases in some regions around the world casts a shadow over global growth prospects, giving policy makers reason to remain patient on withdrawing support. Fed officials have also been largely dismissive of inflation risks for the time being, saying a jump in consumer prices last month was distorted by a pandemic-related decline in prices in March 2020.

Wednesday’s FOMC decision was unanimous. Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. Washington time.

U.S. central bankers repeated they would not change the pace of bond buying until “substantial further progress" is made on their employment and inflation goals. The target range of the benchmark federal funds rate was kept at zero to 0.25%, where it’s been since March 2020.

Economic Growth

Forecasters surveyed by Bloomberg expect the U.S. economy this year to expand at the fastest pace in more than three decades, with the Fed expected to announce in late 2021 that it will start slowing the pace of asset purchases.

U.S. central bankers have backed expansive fiscal policy, noting that millions of Americans are still unemployed and run the risk of remaining jobless for the long-term if they don’t find work soon.Since their March meeting, officials have seen the S&P 500 stock index continue to rally while yields on the government 10-year note, after a sharp move up in the first quarter, have traded in a range around 1.6%. The labor market in March added the most jobs in seven months as improvements across most industries boosted nonfarm payrolls by 916,000.Powell has regarded such progress as digging out of the deep hole casued by the pandemic, a process he described last month as “uneven and far from complete."

Officials have also said policy changes will be based on outcomes, not a forecast, meaning a string of powerful monthly labor market gains would be needed to merit “substantial further progress."


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This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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Published: 28 Apr 2021, 11:42 PM IST
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