Fed sticks with support as recovery will take “some time,” minutes show

© Reuters.

By Yasin Ebrahim – Fed policymakers recognized the advances in the economy but continued to support the sustained pace of monetary support as significant progress in the recovery is likely to be in “some time” according to the Fed’s minutes released Wednesday Will avail.

“The U.S. real gross domestic product (GDP) grew faster in the first quarter of 2021 than it did in the fourth quarter of last year, although real GDP levels have likely not yet returned to levels prior to the start of the pandemic, the logs showed.

“Participants noted that it is likely to take some time to make significant further progress towards meeting the Committee’s goals for maximum employment and price stability and that asset purchases, in line with the committee’s results-oriented guidelines, are at least at the current pace to be continued until then. ”

At the end of its previous meeting on March 18, the Federal Open Market Committee kept its policy rate in a range of 0% to 0.25% and promised to keep bond purchases at a monthly pace of $ 120 billion.

During the meeting, despite acknowledging the recent improvement in the economy and improving inflation, the bank stuck to its forecast of keeping rates near zero through 2023. Of the 12 FOMC members, four called for a rate hike in 2022.

Market participants also appear to be betting against the lower Fed for longer rate modalities as economic reopening – aided by faster vaccine launches – gains momentum.

The Fed futures market now expects rate hikes in 2022 versus 2024 earlier this year amid spike in inflation.

The 10-year inflation hiatus, a key measure of inflation expectations, is an average annual inflation rate of around 2.4%, which is above the Fed’s 2% target.

Most Fed members, however, continue to see “the risks to the inflation outlook as broadly balanced,” but are aware that “disruptions in supply and strong demand could boost price inflation more than expected,” the minutes showed. The central bank has repeatedly reiterated that a sharp spike in inflation will be temporary, betting that the factors that contributed to low inflation during the previous expansion could again put greater pressure on inflation.

Some on Wall Street believe growing fears of out-of-control inflation and an earlier than expected Fed rate hike or bond taper may be a little exaggerated as the global economy has not yet recovered meaningfully.

“The Fed has changed policy many times in history, but I don’t see it as much of a risk. When you look at the global economy, there is still a lot of room for maneuver,” Eric Diton, president and chief executive officer of Wealth Alliance said in a recent interview with “This is not the same world as the Spanish flu in 1918. This is a very connected world in terms of trade and economy,” added Diton.

Fed chairman Jerome Powell reiterated in the press conference – which followed the monetary policy meeting – that the central bank would provide detailed guidance before any proposed policy change.

“We will send a signal that we are on our way to possibly achieving substantial growth in order to consider rejuvenation. I think we have learned from the experiences of the past twelve years to communicate very carefully and very clearly . [and] well in advance … “said Powell.

Powell will be back in focus on Thursday when he takes part in the IMF panel discussion on the global economy.

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