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Fed nods to strengthening economy but waves off talk of policy shift

EconomyApr 28, 2021 04:37PM ET
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© Reuters. FILE PHOTO: The Federal Reserve building is pictured in Washington, DC

By Howard Schneider, Jonnelle Marte and Ann Saphir

WASHINGTON (Reuters) - The Federal Reserve on Wednesday took a rosier view of the U.S. economic recovery and the nation's war against the coronavirus, but said it was too early to consider rolling back its emergency support with so many workers still left jobless by the pandemic.

"It is not time yet," to begin discussing any change in policy, Fed Chair Jerome Powell told reporters after the release of a policy statement in which the U.S. central bank left interest rates and its bond-buying program unchanged.

"We are 8.5 million jobs below February 2020," Powell said. "We are a long way from our goals ... It is going to take some time."

Though inflation is due to rise, Powell said the coming price increases would almost surely be of a passing nature, and not present the sort of persistent problem that would force the Fed to begin raising interest rates sooner than expected.

As it stands, the central bank wants to keep monetary policy loose for the foreseeable future even as it sees the economic recovery gaining pace and the risks from the pandemic starting to ebb.

"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the Fed's policy-setting committee said in a unanimous statement, with improvement seen even in the industries hardest hit by the onset of the pandemic.

While repeating that "the path of the economy will depend significantly on the course of the virus," the Fed appeared to take a less downcast view of the ongoing health crisis than it did last month.

In its statement after the March 16-17 policy meeting, the Fed portrayed the coronavirus as posing "considerable risks to the economic outlook." On Wednesday, it said "risks to the economic outlook remain" because of the virus.

Coupled with the strong language on the economy's prospects, analysts said the Fed's tone suggested at least a small step towards the beginnings of a discussion about when to wean the economy from crisis-era programs.

"It is very much tiptoeing in the direction of a stronger economic backdrop that could potentially justify tapering and eventual rate increases," said Steven Violin, portfolio manager for F.L.Putnam Investment Management Company in Wellesley, Massachusetts.

Yet despite the evidence of improvement, the Fed left unchanged the list of conditions, first set in December, that must be met before it considers pulling back from the support put in place last year to stem the pandemic's economic fallout.

That includes "substantial further progress" towards its inflation and employment goals before stepping back from the $120 billion in U.S. government bonds and mortgage-backed securities that it is buying each month.

MONTHS DOWN THE ROAD

Investors and analysts had expected this week's Fed meeting would see little if any change to the policy statement, and the initial reaction in financial markets was muted.

The benchmark S&P 500 index ended the session slightly lower and yields on U.S. Treasury securities fell. The dollar weakened against a basket of key trading partner currencies.

U.S. job growth has been accelerating and the Fed expects inflation to rise to its 2% target over time, eventually allowing it to trim its bond purchases and raise its target overnight interest rate from the current level near zero.

But even that first step of tapering bond purchases is likely months down the road, and the Fed gave no indication in Wednesday's statement that there is any rush.

The expansion of the COVID-19 vaccination program has contributed to expectations for fast economic growth this year, though the Fed acknowledged that the economy's prospects will be contingent on continued progress in managing the pandemic.

Fed nods to strengthening economy but waves off talk of policy shift
 

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Comments (1)
Steve Lora
Steve Lora Apr 28, 2021 7:29AM ET
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places are glad to be open after fascist dictator Democrat goverbors shut them down. Prices will be lower as they reopen and compete
 
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