The Federal Reserve on Wednesday kept its easy money policy in place despite an economy that it acknowledged is accelerating.
As expected, the U.S. central bank decided to keep short-term interest rates anchored near zero as it buys at least $120 billion of bonds each month. The latter part of policy is a two-pronged effort to support an economy that grew strongly to start 2021 as well as to support market functioning at a time when 30-year mortgages still go for around 3%.
Despite noting the economic strength as well as inflation that is on the rise, if just temporarily, the policymaking Federal Open Market Committee unanimously decided to make no changes in its approach and gave no indications that things will change anytime soon.
Fed Chairman Jerome Powell said the recovery is “uneven and far from complete.” While he noted that inflation pressures could rise in the coming months, these “one-time increases in prices are likely to only have transitory effects on inflation.”
Powell added that it’s still not time to talk about reducing policy accommodation, including the asset purchases.
“It will take some time before we see substantial further progress,” he said, repeating a phrase the FOMC has used repeatedly in its post-meeting statement.
“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the committee said.
“The sectors most adversely affected by the pandemic remain weak but have shown improvement,” it added. “Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”
The committee again noted that economic progress is largely dependent on the course of the pandemic. Daily case counts have dropped significantly as the U.S. has been vaccinating close to 3 million people a day.
“The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain,” the statement said. At the March meeting, the same sentence included “employment” as an area where the crisis was having a negative impact, indicating that officials are noting improvement in the labor market.
Committee members unanimously agreed to stay put on policy.
Reference: CNBC
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