For the first time, the US Federal Reserve Minutes hinted at a possible tightening of policy – a reduction in bond purchases amid economic recovery. However, economists point out that the fall in employment in April has already made adjustments and the Fed will not change policy until full employment is achieved.
On Wednesday, the main US indices fell after the publication of the minutes of the April meetings of the Federal Reserve System (FRS).
The S&P 500 was down 0.29% on Wednesday, the Dow Jones shed 0.48% and the Nasdaq Composite sank a marginal 0.03%.
In the minutes, investors and market analysts saw for the first time a hint of a possible cut in the Fed’s bond purchases as the US economy quickly recovers.
“A number of participants suggested that if the economy continues to move rapidly towards the Committee’s goals, it may be appropriate at some point in upcoming meetings to start discussing a plan to adjust the pace of asset purchases,” the minutes said.
Following the April 27-28 meetings, central bank officials led by Chairman Jerome Powell urged investors that the Fed would not raise rates or cut its current rate of $ 120 billion in monthly asset purchases until the U.S. economy recovers to pre-pandemic levels. COVID-19 and will return to full employment. The Fed’s base interest rates were kept at 0% -0.25%.
Market analysts were quick to announce that the situation has changed since the Fed meeting and today the Fed is still seeking to wait for improvements in the labor market before changing policy.
A Labor Department report in early May showed that the US economy added a record low number of new jobs in April 2021: 266,000 versus 770,000 in March, which is only a quarter of the market’s average market expectations of 978,000. This suggests that the US labor market is far from full employment before the start of the pandemic, and some analysts believe that it will never return to previous levels.
Experts blame the problem with higher unemployment benefits, $ 1,400 incentive checks from the government for Americans, and massive retirements.
In addition, there is growing concern on Wall Street about inflation, which soared in April to a record 4.2%. However, representatives of the Fed and US Treasury Secretary Janet Yellen are not worried about the growing inflationary pressures, since they consider it temporary and firmly believe that it is controllable and retaliatory measures can be introduced at any time.
The April Fed meeting minutes are based, among other things, on the report on the sharp rise in retail sales in March, but this situation was caused by temporary factors and the forthcoming April report will give a more accurate “picture” of how the economy is recovering.
US GDP in the first quarter of 2021 grew by as much as 6.4%, economists expect another jump in GDP growth in the second quarter of about 10%.
Additional data on the pace of economic recovery and the US labor market will appear today during the day, as the weekly data on the number of new jobless claims in the US is released. The trend of the last two weeks has been positive – the number of new unemployed has dropped sharply.
Economists forecast 452,000 new jobless claims for the week ending May 15, slightly less than 473,000 the week before.
The Fed will hold its next meeting in June, after which the regulator will announce its position on monetary policy in the United States, as well as update forecasts for GDP growth, inflation, unemployment and the corresponding trajectory of the Fed’s base interest rate.