On March 17, 2021 at the FOMC event, the FED Chairman Jerome Powell stated that he expect to keep interest rates close to zero until at least 2024, even as the FED has upgraded their US growth forecasts because of a massive fiscal stimulus and an accelerating vaccine rollout.
Powell precisely refers to a “…full range of tools to provide relief and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.
… achieving the monetary policy goals that Congress has given us: maximum employment and price stability.”
Further he adds that their “…ability to achieve maximum employment in the years ahead depends importantly on having longer-term inflation expectations well anchored at 2 percent.”
So basically the unemployment rate is now forecast to fall to 4.5% by the end of the year instead of 5%. On the other side PCE inflation is expected to rise to 2.2% compared with the rise to 1.8% predicted in December.
But Fed officials expect the bump in consumer prices to be temporary, with PCE inflation falling back in 2022-2023, even as unemployment drops further.
And regarding to the federal funds rates the FED continues to “expect it will be appropriate to maintain the current 0 to 0.25 percent target range”
So they will continue to increase their “holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month”
So the Fed has managed to maintain rock-bottom interest rates “…with inflation running persistently below 2 percent” in order to “achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent” until the US reaches full employment, with inflation hitting 2 per cent and being on track to exceed that target. The central bank also reiterated that it would continue to buy bonds at a rate of $120bn per month until “substantial further progress” was made.
And they “will continue to provide the economy the support that it needs for as long as it takes.”
An approach similar to the famous Mario Draghi “Whatever it takes” to save Europe in 2012, from a deep economic crisis.
As a result of this policy the upgrades to the forecasts from Fed officials were significant. In fact back in December they predicted 4.2% growth this year, while now they have raised that estimate up to 6.5% (+2.3%), which would be the fastest economic expansion since 1984.
What we can say is that this sharp upgrade to the FED’s summary of economic projections will certainly generate doubts to the central bank’s dovish policy.
During his speech Powell reiterates many times that “The economic recovery remains uneven and far from complete, and the path ahead remains uncertain.”
And that the FED has provided essential support to households, businesses and communities, and the recovery in economic activity since last spring is due to “an unprecedented fiscal and monetary policy actions.”
He concludes by saying that the FED understands that “our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission… and to help assure that the recovery from this difficult period will be as robust as possible”
So this is what happened during the last FOMC event.
What do you guys think about Powell speech?
What consequences will the markets undergo in the next months?