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Fed to Stick With Support as Recovery Will Take 'Some Time', Minutes Show

EconomyApr 07, 2021 04:31PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com - Federal Reserve policymakers acknowledged progress on the economy, but continued to back the ongoing pace of monetary support as substantial progress on the recovery will likely take "some time," according to the Federal Reserve minutes released Wednesday.

"U.S. real gross domestic product (GDP) was expanding in the first quarter of 2021 at a pace that was faster than in the fourth quarter of last year, al­though the level of real GDP had likely not yet returned to the level seen before the onset of the pandemic, the minutes showed. 

"Participants noted that it would likely be some time until substantial further progress toward the Committee's maximum-employment and price-stability goals would be realized and that, consistent with the Committee's outcome-based guidance, asset purchases would continue at least at the current pace until then." 

At the conclusion of its previous meeting on March 18, the Federal Open Market Committee kept its benchmark rate in a range of  0% to 0.25% and pledged to maintain bond purchases at a $120 billion monthly pace.

At the meeting, the bank, despite acknowledging the recent improvement in the economy and improving inflation, maintained its forecast to keep rates near-zero through 2023. Among the 12 FOMC members, four called for a rate hike in 2022.

Market participants also appear to be betting against the Fed's lower for longer interest rate modus operandi as the economic reopening - aided by speedier vaccine rollouts –  gathers pace.

The Fed futures market now anticipates interest rate hikes in 2022, up from 2024 earlier this this year, amid a step up in inflation.

The 10-year inflation break evens, a key measure of inflation expectations, are pricing in average annual inflation of about 2.4%, above the Fed's 2% target.

Most Fed members, however, continue to view "the risks to the outlook for inflation as broadly balanced," though are aware that "supply disruptions and strong demand could push up price inflation more than anticipated,"  the minutes showed. The central bank has repeatedly reiterated that sharp uptick in inflation will be transitory, betting that the factors that had contributed to low inflation during the previous expansion could again exert more downward pressure on inflation.  

Some on Wall Street believe the growing fears of runaway inflation and a sooner than expected Fed rate hike or taper of bonds may be overdone somewhat as the global economy is yet to make a meaningful recovery.

"The Fed has changed policy many times in history, but I don't see it as a big risk. If you look at the global economy, there's still plenty of slack, Eric Diton, president and managing director at The Wealth Alliance, said in a recent interview with Investing.com. "This is not the same world of the Spanish flu in 1918. This is a very interconnected world with regard to trade and economies," Diton added.

Fed Chairman Jerome Powell reiterated in the press conference - that followed the monetary policy meeting – that the central bank will provide ample guidance ahead of any proposed policy tweak.

"We will give a signal that we’re on a path to possibly achieve substantial growth to consider tapering. I think what we’ve learned from the experience of these last dozen years, is to communicate very carefully, very clearly, [and] well in advance …" Powell said.

Powell will be in focus again on Thursday as he participates in the IMF panel discussion on the global economy.

Fed to Stick With Support as Recovery Will Take 'Some Time', Minutes Show
 

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Comments (10)
CHAD TENDIES
CHAD TENDIES Apr 07, 2021 4:20PM ET
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They have no choice. There will be no taper or else the entire system will collapse. End game is printing until dollar is no more
Dave Jones
Dave Jones Apr 07, 2021 4:20PM ET
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Exactly right. They don't have a choice and it's fun to watch!
danny Levine
danny Levine Apr 07, 2021 3:57PM ET
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I'm willing to sacrifice a bit on the GDP growth, in exchange for a safer finance market.
Lars Riis-Kofoed
Lars Riis-Kofoed Apr 07, 2021 3:54PM ET
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The fact that FED find it important to communicate they have considered to inform early about policychange, shows the true bias. Inflation will take center focus and will (strangely enough) surprise market participants. 10yr notes hits 2,5% before 1,25%
Ellie SB Kim
Ellie SB Kim Apr 07, 2021 3:41PM ET
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Backing the pace of support equals Tapering
cedrik marchand
cedrik marchand Apr 07, 2021 3:37PM ET
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thank
Dave Jones
Dave Jones Apr 07, 2021 3:06PM ET
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LMAO
Stan Deviation
Stan Deviation Apr 07, 2021 2:36PM ET
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Rising GDP with monthly job losses is a sign of an inflationary padded GDP....
Me comment
Me comment Apr 07, 2021 2:36PM ET
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monthly jobs have been increasing in the first quarter not decreasing hence the net 600+ thousand job growth.
Stan Deviation
Stan Deviation Apr 07, 2021 2:36PM ET
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Created jobs are paper ads..jobs filled over jobs lost...
Stan Deviation
Stan Deviation Apr 07, 2021 2:36PM ET
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I forgot...retirements aren't included in net overall job losses....I don't believe...
Stan Deviation
Stan Deviation Apr 07, 2021 2:36PM ET
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Yup...3.2 million additional retirements last year...that is like 800k quarterly in projections
kawal chadha
kawal chadha Apr 07, 2021 2:28PM ET
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lol
Joe Messeri
Joe Messeri Apr 07, 2021 2:24PM ET
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Green shoots lol
Casador Del Oso
Casador Del Oso Apr 07, 2021 2:22PM ET
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All this stimulus and the economy hasn't even started a meaningful recovery.
 
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