US Fed projects patience even as economic outlook brightens

NEW YORK (NYTIMES) – Federal Reserve officials signalled on Wednesday (March 17) that they are in no rush to dial back support for a US economy still struggling amid the pandemic, releasing a fresh set of projections that showed the central bank’s policy interest rate on hold at near-zero for years to come even as growth is expected to pick up considerably in the near term.

The Fed slashed its policy interest rate – which guides borrowing costs throughout the economy – to rock bottom in March 2020 and chose to keep it there Wednesday, an effort to keep credit cheap and continue stoking growth

Analysts had expected the steady outcome but were closely watching the central bank’s fresh set of economic projections, which show officials’ anonymous estimates of how conditions will evolve through 2023 and in the longer run.

The new release showed that officials have become more optimistic about the outlook for growth, unemployment and inflation since their December estimates came out – but not to the point that they anticipate a wild overheating of the economy or expect to remove policy support rapidly.

Most officials still see rates at rock-bottom over the next three years, meaning they are not penciling in a rate increase until at least 2024.

“No one should be complacent,” Jerome Powell, the Fed chairman, said at a news conference Wednesday afternoon, noting that “the path ahead remains uncertain” and highly dependent on the virus.

Fed officials, in their post-meeting statement, noted that some parts of the economy had improved and Powell noted that participants pointed to vaccines and fiscal stimulus in revising up their economic expectations.

But he noted that the unemployment rate remains elevated, and that millions of jobs are still missing.

Since the Fed last updated its economic projections, Congress and the White House have passed two large spending packages – a US$900 billion (S$1.2 trillion) Bill in December and another US$1.9 trillion earlier this month.

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That huge infusion of government cash will put money in consumer bank accounts and could help to avert economic damage that Fed officials had worried about, like bankruptcies and evictions.

Powell his colleagues have been clear that they want to see a job market that is back at full employment and inflation that is slightly above 2 per cent and expected to stay there for some time before lifting interest rates.

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