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Fed Keeps Rates on Hold Despite Signs of Improving Economic Recovery

Economic Indicators Apr 28, 2021 03:12PM ET
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By Yasin Ebrahim

Investing.com – The Federal Reserve left rates unchanged Wednesday, and appears to be in no rush to rein in its accommodative stance even as vaccine rollouts and fiscal stimulus have bolstered the recovery.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25% and maintained its monthly pace of bond buying at $120 billion.

"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement," the Fed said in a statement.

Despite the improving economic backdrop and faster pace of reopening, the pandemic continues to weigh on the outlook, according to the Fed. "The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain."

In the press conference that followed the policy statement, Fed chairman Jerome Powell continued to signal that the current stand on policy will remain steady for some time.   

"We continue to expect it will be appropriate to maintain the current zero to one quarter percent target range for the federal funds rate until labour market conditions have reached levels consistent with the committee's assessment of maximum employment and inflation has risen to 2%, and is on track to moderately exceed 2% for some time."

Still, market participants remain wary of an unexpected shift in the Fed's policy. Incoming economic data continue to point to a robust recovery as inflation steps up pace.

The 10-year inflation "breakevens,” a key measure of inflation expectations over the next decade, topped 2.4% on Tuesday, the highest level since April 2013. The PCE index, the Fed's preferred inflation measures, was at 1.6% for February.

The central bank has not turned a blind eye to the increasing pace of inflation, but continues to suggest the post-reopening boom in inflation will be short-lived, or transitory. "Inflation has risen, largely reflecting transitory factors," the Fed said in a statement.

"[W]e are likely to see some upward pressure on prices and but those pressures are likely to be temporary as they are associated with the reopening process and one-time price increases as the economy reopens," Powell said. "It is not likely to lead to persistently higher year over year inflation into the future," he added. 

On the labor market, the Fed chief said the economy is a "long way from full employment" as unemployment remains above pre-pandemic levels. "We've got a long ways to go," Powell added.

Fed Keeps Rates on Hold Despite Signs of Improving Economic Recovery
 

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Comments (27)
John Miller
John Miller Apr 28, 2021 9:49PM ET
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economic recovery? I don't think so. inflation, I know so.
taylor jason
taylor jason Apr 28, 2021 9:49PM ET
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this must be why you don't work for the fed
Co By
Co By Apr 28, 2021 7:15PM ET
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កំពូលយុ
Mike Chen
Mike Chen Apr 28, 2021 7:13PM ET
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I want cheap dollars. Depreciate another 50% and go like Japanese economy with endless stimulus and QE. Build infrastructures improve American life!
Mike Chen
Mike Chen Apr 28, 2021 6:40PM ET
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Fed wants low usd to increase their export and make inport products expensive to create inflation. Sell dollars buy bitcoin!
Bobster Bambino
Bobster Bambino Apr 28, 2021 6:32PM ET
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Incompetent fed raises rates when not indicated and holds at historic lows despite massive inflation and economic recovery.
Gabe Cret
Gabe Cret Apr 28, 2021 6:23PM ET
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Hm, not compelling at all ... half of able body people are home , unemployed receiving that goverment check.
David Frankel
David Frankel Apr 28, 2021 6:20PM ET
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What is full employment, when 50% of the country is not looking for a job.? They've hollowed out every industry besides tech that's designed to eliminate more jobs. Stop the stimmies so that employers aren't in competition with the "wages" the government is providing.
Joel Schwartz
Joel Schwartz Apr 28, 2021 6:20PM ET
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And why should anyone look for a job when they can collect unemployment, YOLO options and make more than their old job thanks to the FED’s reckless monetary policies? It’s all so broken.
Danny Flournoy
Danny Flournoy Apr 28, 2021 5:20PM ET
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me i give it my all . boss man
Xer Zuproc
Xer Zuproc Apr 28, 2021 4:52PM ET
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me via google/amazon accounts.
Eduardo Galdo Franco
Eduardo Galdo Franco Apr 28, 2021 4:48PM ET
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All prices are going up, coincidence? no, this means us dollar is worth less every day
 
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