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Fed keeps key rate near zero, sees inflation as ‘transitory’

April 29
10:41 2021

The U.S. economy is quickly strengthening, inflation is showing signs of picking up and the nation is making progress toward defeating the viral pandemic.

But on Wednesday, Chair Jerome Powell made clear that the Federal Reserve isn’t even close to beginning a pullback in its ultra-low interest rate policies.

In a statement after its latest policy meeting, the Fed said it would keep its benchmark short-term rate near zero, where it’s been pinned since the pandemic erupted nearly a year ago. The goal is to help keep loan rates down, for individuals and businesses, to encourage borrowing and spending. The Fed also said it would keep buying $120 billion in bonds each month to try to keep longer-term borrowing rates low, too.

At a news conference, Powell stressed that the Fed would need to see more evidence of sustained and substantial improvements in the job market and the overall economy before it would consider reducing its bond purchases. In the past, Powell has said that the Fed’s eventual pullback in its economic support would start with a reduction in its bond buying and only after that in a potential rate hike.

“We’re just going to need to see more data,” Powell said. “It’s not more complicated than that.”

Paul Ashworth, an economist at Capital Economics, noted that “although it took a more upbeat tone on the economic outlook and acknowledged that inflation has risen, the Fed offered no hints that it was considering slowing the pace of its asset purchases, let alone thinking about raising interest rates.”

Powell did highlight the economy’s improvement in recent months but said much more progress was necessary.

“Since the beginning of the year, indicators of economic activity and employment have strengthened,” the chairman said. “Household spending on goods has risen robustly.”

He also highlighted the striking progress the nation has made against the pandemic — a key point given that the chairman has often said that the economic recovery depends on the virus being brought under control.

“Continued vaccinations,” Powell said, “should allow for a return to more normal economic conditions later this year.”

The U.S. economy has been posting unexpectedly strong gains in recent weeks, with barometers of hiring, spending and manufacturing all surging. Most economists say they detect the early stages of what could be a robust and sustained recovery, with coronavirus case counts declining, vaccinations rising and Americans spending their stimulus-boosted savings.

In March, employers added nearly 1 million jobs — an unheard-of figure before the pandemic. And in April, consumer confidence jumped to its highest level since the pandemic flattened the economy in March of last year.

Continue Reading at Associated Press

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