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Fed Leaves Interest Rates Unchanged as Economy Begins to Heal

“While the level of new cases remains concerning,” he said, “continued vaccinations should allow for a return to more normal economic conditions later this year.”

Fed officials have signaled that they will keep interest rates low and bond purchases going at the current $120 billion-per-month pace until the recovery is more complete. The Fed has said it would like to see “substantial” further progress before dialing back government-backed bond buying, a policy meant to make many kinds of borrowing cheap. The hurdle for raising rates is even higher: Officials want the economy to return to full employment and achieve 2 percent inflation, with expectations that inflation will remain higher for some time.

“A transitory rise in inflation above 2 percent this year would not meet this standard,” Mr. Powell said of the Fed’s criteria for achieving its average inflation target before raising interest rates. When it comes to bond buying, “the economy is a long way from our goals, and it is likely to take some time for substantial further progress to be achieved.”

He later said that “it is not time yet” to talk about scaling back, or “tapering,” bond purchases.

Unemployment, which peaked at 14.8 percent last April, has since declined to 6 percent. Retail spending is strong, supported by repeated government stimulus checks. Consumers have amassed a big savings stockpile over months of stay-at-home orders, so there is reason to expect that things could pick up further as the economy fully reopens.

Yet there is room for improvement. The jobless rate remains well above its 3.5 percent reading coming into the pandemic, with Black workers and those in lower-paying jobs disproportionately out of work. Some businesses have closed forever, and it remains to be seen how post-pandemic changes in daily patterns will affect others, like corporate offices and the companies that service them.

“There’s no playbook here,” said Michelle Meyer, the head of U.S. economics at Bank of America, adding that the Fed needed time to let inflation play out and the labor market heal, and that while the signs were encouraging, central bankers would only “react when they have enough evidence.”

The Fed has repeatedly said it wants to see realized improvement in economic data — not just expected healing — before it reduces its support. Based on their March economic projections, most Fed officials are penciling in interest rates near zero through at least 2023.

Source (Ny Times)

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