JAKARTA (TheInsiderStories) – The Federal Open Market Committee (FOMC) left its benchmark rate unchanged in the range zero to 0.25 percent and said it would continue its US$120 billion monthly bond purchases. The policymakers appear in no hurry to hike rates, continuing to back them at near-zero through 2023 despite hiking their outlook on growth
The policymakers forecasted the United States (US) gross domestic product (GDP) would surge by 6.5 percent in 2021, the fastest rate since the 1980s. That is a 2.3 percentage-point improvement in 2021′ outlook from their previous forecasts end of last year.
Chairman of the Federal Reserve (Fed), Jerome Powell, said US economy is expected to grow by 6.5 percent in 2021, and 3.3 percent in 2022, up from previous estimates of 4.2 percent and 3.2 percent, respectively. The Bank’ efforts have been helped by a wave of unprecedented pandemic fiscal relief measures rolled out by the President Joe Biden’ administration.
The US$1.9 trillion American Rescue Plan, together with the faster pace of vaccine roll outs have added fuel to the recovery, he adds. But, he reminded, the improving economic backdrop has sparked inflation and US’ bond yields into life, stoking speculation over whether the Fed will have to tighten policy sooner than expected.
The minutes also showed, the Fed interest rate outlook for 2021 through 2023 was 0.1 percent. The unchanged guidance on interest rates comes even as the central bank upped its outlook on growth and inflation in the wake of an improving economic backdrop amid a boost from stimulus and the faster pace of vaccine rollouts.
The pace of inflation is forecast to improve to 2.4 percent in 2021, 2.0 percent in 2022, compared with prior estimates of 1.8 percent and 1.9 percent, respectively. In 2023, said Powell, the inflation is projected to reach the 2.1 percent of the target from previously at 2 percent, though the central bank has reiterated that it would let inflation run above target for some time.
The Fed also justified its accommodative stance as the unemployment rate at 6.2 percent remains above pre-pandemic levels. The unemployment rate for the 2021 is expected to come in at 4.5 percent, down from initial projection at 5 percent, and fall further to 3.9 percent in 2022 from previous estimate of 4.2 percent and to improve further to 3.5 percent in 2023 from a prior estimate of 3.7 percent.
“We are having diverging recoveries here, as we did after the last crisis. In this case the US recovery is leading the global recovery,” concluded by Powell.
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