Fed keeps interest rates near zero but notes ‘strengthened’ US economic recovery

The Federal Reserve said Wednesday that it would maintain ultra-low interest rates and reaffirmed its commitment to other easing policies even as the U.S. economic recovery from the coronavirus pandemic rapidly strengthens.

The U.S. central bank, as widely expected, held the benchmark federal funds rate at a range between 0% and 0.25%, where it has been since March 2020, when COVID-19 forced an unprecedented shutdown of the nation’s economy. Since June, the Fed has also been purchasing $120 billion in bonds each month, a policy known as “quantitative easing” that’s designed to keep credit cheap.

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Policymakers unanimously pledged to maintain the current policy stance until “labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

Fed Chairman Jerome Powell has previously said these conditions are unlikely to occur this year, and economic projections from policymakers’ last meeting show that most officials expect rates to remain near zero through 2023. About seven of the 18 Fed officials at the meeting said they expect to start lifting rates in 2022 or 2023 — an increase from December, when just five forecast a rate hike.

But officials acknowledged that the economic outlook has brightened drastically in recent months as vaccination rates have increased, business restrictions have eased and more Americans venture out to shop, eat at restaurants and travel. On top of that, President Biden in March signed into law a sweeping relief plan that will pump another $1.9 trillion into the nation’s economy.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Federal Open Market Committee said in its post-meeting statement. “The sectors most adversely affected by the pandemic remain weak but have shown improvement.”

Nevertheless, the Fed reiterated that the path of the economy ultimately depends “significantly on the course of the virus, including progress on vaccinations.”

“The ongoing public health crisis continues to weigh on the economy and risks to the economic outlook remain,” the statement said. It marked a slight improvement from the Fed’s March statement, when policymakers said the health crisis “poses considerable risks to the economic outlook.”

There are still roughly 8.4 million fewer jobs than there were before the pandemic struck, and the jobless rate remains at 6%, well above the half-century low it sat at last February. Although inflation has risen recently, policymakers called the uptick “transitory” and noted that it’s running consistently below the Fed’s 2% target.

“In many ways, the Federal Reserve is stating much of the obvious while keeping some of its monetary policy cards close to the proverbial vest,” said Mark Hamrick, senior economic analyst at Bankrate.com. “It is no secret that the economy continues to improve with solid prospects for further growth and rising employment. Officials want to see further positive outcomes even amid the improving outlook.”

Source:-https://www.foxbusiness.com/economy/fed-keeps-interest-rates-near-zero-as-us-economic-recovery-heats-up

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