Federal Reserve officials stated at their last meeting that the easy policy will remain in place until it produces stronger employment and inflation and will not be adjusted solely on the basis of forecasts. .
The Federal Open Market Committee on Wednesday published minutes of the meeting on 16-17. March, as investors looked for indications of where the policy may be heading in the future.
The summary of the meetings showed that while officials saw the economy gain significantly, they see much more progress needed before ultra-easy policy changes.
Members said the 1
“Participants noted that it would probably take some time for significant further progress towards the Committee’s maximum employment and price stability objectives to be realized and that, in line with the Committee’s results – oriented guidance, asset purchases continued at least at the current pace until then. “
Adherence to “performance-based guidance” is a commitment that the Fed will wait until the economy shows “significant further progress” towards the double employment and inflation target of around 2%.
The guidance is a shift in policy for the Fed, where it would previously adjust policy in anticipation of inflation. The protocol said members agreed that policy changes “should be based primarily on observed results rather than forecasts.”
At the meeting, the Fed’s political arm voted to keep short-term borrowing rates close to zero and continue to buy at least $ 120 billion in bonds each month.
The market gets plenty of notice before the committee makes changes, the protocol said.
“A number of participants emphasized the importance of the committee clearly announcing its assessment of progress towards its long-term goals well in advance of the time when it could be assessed as significant enough to justify a change in the pace of asset purchases,” he said. “The timing of such communication will depend on economic developments and the pace of progress towards the Committee’s objectives.”
In addition, the Committee raised its outlook for economic growth and inflation going forward. The median outlook for GDP in 2021 went to 6.5%, a major upgrade from the 4.2% forecast in December.
Officials also said unemployment could fall to 4.5% by the end of the year and inflation could run to 2.2%, slightly above the Fed’s traditional 2% target.
Although inflation shows up 64 times in minutes, Fed officials indicated little concern that it could soon become a problem. A view in the protocol said that inflation forecasts were exactly where FOMC members expected.
During a meeting with the media a few hours before the minutes were released, Chicago Fed President Charles Evans said it would take “months and months” of higher inflation before I would even have an opinion on whether this is sustainable or not. “
Heading into the FOMC meeting in March, some market experts had expected the Fed to at least change the duration of the bonds it has bought to offset a sharp rise this year in longer-term government yields.
However, President Jerome Powell and other central bank governors have said they see the rise in interest rates as a reflection of stronger growth expectations rather than unpleasant inflationary pressures.
This is news. See here for updates.
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