The published March Fed minutes showed an increase in forecasts for the US economy amid massive vaccinations and federal aid. At the same time, the Central Bank said that the policy will be changed only after the results are achieved and will not be adjusted based on forecasts.
The Fed’s decisions to keep interest rates at zero and to make monthly purchases of $ 120 billion of bonds announced after the March 16-17 meeting have boosted US stocks over the past three weeks.
The minutes from those meetings released Wednesday were meant to provide insight into the positions of various Fed members as investors look for signs of where the central bank’s policy will take in the future.
The results of the meetings indicate an ongoing debate among policymakers about how quickly the economic recovery can take place. Four Fed members predict a rate hike as early as next year, compared with most others, who do not expect rates to rise until at least 2024.
Against the backdrop of mass vaccinations and a large federal aid package of $ 1.9 trillion. The Fed raised forecasts for U.S. GDP growth in 2021 from 4.2% (as of December) to 6.5%, if achieved, the fastest growth since 1984.
At the same time, central bank officials “agreed that the economy is still far from long-term goals and that the way forward remains highly uncertain.”
The key question among market participants is whether the Fed will hold back the interest rate hike, as it says, until employment and price stability are fully restored.
The Fed’s minutes confirm that this policy will remain in place and will not be adjusted based on projections alone.
The commitment to “results-based management” is a guarantee that the Fed will wait until the economy shows “significant further progress,” policy changes “should be based primarily on observed results, not on forecasts,” the official documents of the central bank.
The minutes of the meetings also say that the market will receive a lot of notices before the Fed committee makes any changes.
Along with unchanged policies, FOMC members have raised their forecasts for employment and inflation, expecting the unemployment rate to fall to 4.5% by the end of the year and inflation to rise to 2.2%, slightly above the traditional target. the FRS indicator of 2%.
US unemployment fell to 6% in March as the economy created 916,000 jobs, well above economists’ expectations. Inflation is on the rise, although the March 1.6% rate is still well below the Fed’s target.
Chicago Fed President Charles Evans said it would take “many months” for inflation to rise “before I can form an opinion on whether this is sustainable or not.”
Chairman Jerome Powell and other central bankers said they see rate hikes as a reflection of stronger growth expectations, not uncomfortable inflationary pressures.
Major US stock indices reacted weakly to the publication of the Fed minutes on Wednesday. The S&P 500 briefly climbed to a session high after the minutes but closed with a 0.15% gain, the Dow Jones rose 0.05% and the Nasdaq Composite fell 0.07%.
Jamie Dimon, chief executive officer of the largest US bank JPMorgan Chase (JPM), said this week that the United States could expect an economic boom until 2023 if more adults are vaccinated and federal aid payments continue.