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Fed expects to keep supporting economy 'for some time,' minutes show

EconomyApr 07, 2021 05:30PM ET
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2/2 © Reuters. FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington 2/2

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) - Federal Reserve officials remain wary about the ongoing risks of the coronavirus pandemic and are committed to bolstering the economy until its recovery is more secure, minutes of the U.S. central bank’s latest policy meeting showed on Wednesday.

With their own forecasts projecting the strongest run of U.S. economic growth in nearly 40 years, "participants agreed that the economy remained far from the (Fed’s) longer-run goals and that the path ahead remained highly uncertain," the minutes from the March 16-17 meeting said.

"Participants noted that it would likely be some time," before conditions improved enough for the central bank to consider reducing its current level of support.

Though several policymakers at the meeting indicated they thought interest rates might need to increase sooner than anticipated by the bulk of their colleagues, and perhaps as soon as next year, there was little sense of urgency around that issue in the minutes.

Labor markets were improving, but remained gashed by the pandemic. Inflation would pick up, the minutes noted, but likely subside next year. A recent jump in U.S. Treasury yields was "generally viewed ... as reflecting the improved economic outlook."

Only a couple of the officials cited possible financial stability risks flowing from the Fed’s current policy of maintaining its overnight benchmark lending rate near zero and buying $120 billion in bonds every month – a setting the Fed says is locked in until the economy is well on its way to being healed.

That process is underway, with the economy buoyed by the Fed's support, massive fiscal spending pushed by the White House and passed by Congress, and an accelerating COVID-19 vaccination program.

But even with a "brighter outlook," Fed Governor Lael Brainard said on CNBC that the wounds to the economy remain deep, and the Fed's new approach is to not act until its employment and inflation goals are secured.

Policymakers expect "considerably better outcomes on growth, and employment and inflation" in coming months, Brainard said. "But that is an outlook. We are going to have to actually see that in the data," and with millions of jobs still missing due to the pandemic "we have some distance to go."

But progress may also come fast as the economy reopens and the impact of the vaccines is felt. The U.S. economy added nearly a million jobs in March, and that pace may well continue as more activities are considered safe to resume.

Bob Miller, BlackRock (NYSE:BLK)'s head of fixed income for the Americas, said he felt the Fed could not for much longer paper over the gap between the economy's continued progress and its own insistence on maintaining policies designed for a crisis.

"It's difficult to understand how policy is properly calibrated now. The same emergency stance remains despite the absence of emergency conditions," Miller wrote. "The unwillingness to acknowledge the degree of improvement looks increasingly challenged," a stance that may need to change perhaps by the Fed's June policy meeting.

'WILLING TO BE BOLDER'

Prices on a variety of securities affected by the Fed's target interest rate show investors expect the central bank to raise rates sooner than its own projections indicate.

Chicago Fed President Charles Evans, who agrees with the majority of his colleagues that the Fed's benchmark overnight interest rate will likely need to stay near zero through 2023, said he envisions an uncomfortable period of higher inflation this year. But he insisted the Fed shouldn't budge until it's sure that prices won't just fall back again below its 2% inflation goal.

"We really have to be patient and be willing to be bolder than most conservative central bankers would choose to be," he told reporters after an event organized by the University of Nevada, Reno.

Speaking separately at a virtual session organized by UBS, Dallas Fed President Robert Kaplan reiterated his longstanding worries that low interest rates and the Fed's bond purchases could fuel excesses in markets.

Once the pandemic has receded, Kaplan said, the Fed should pare its bond-buying and move toward raising rates in 2022, and he signaled he may even be open to doing both at once.

Fed expects to keep supporting economy 'for some time,' minutes show
 

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Comments (4)
Nate Krzywicki
Nate Krzywicki 6 hours ago
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𝚑𝚘𝚠 𝚍𝚘𝚎𝚜 𝚕𝚒𝚏𝚎 𝚏𝚎𝚎𝚕 𝚠𝚑𝚎𝚗 𝚖𝚘𝚗𝚎𝚢 𝚒𝚜 𝚗𝚘𝚝 𝚊𝚗 𝚒𝚜𝚜𝚞𝚎? 𝚠𝚑𝚊𝚝 𝚒𝚜 𝚒𝚝 𝚕𝚒𝚔𝚎 𝚝𝚘 𝚑𝚊𝚟𝚎 𝚊𝚕𝚕 𝚢𝚘𝚞𝚛 𝚋𝚒𝚕𝚕𝚜 𝚊𝚗𝚍 𝚍𝚎𝚋𝚝𝚜 𝚙𝚊𝚒𝚍 𝚒𝚗 𝚏𝚞𝚕𝚕? 𝚠𝚑𝚎𝚗 𝚌𝚊𝚗 𝚢𝚘𝚞 𝚍𝚘 𝚠𝚑𝚊𝚝 𝚢𝚘𝚞 𝚠𝚊𝚗𝚝, 𝚠𝚑𝚎𝚗 𝚢𝚘𝚞 𝚠𝚊𝚗𝚝? 𝚝𝚑𝚎𝚛𝚎 𝚒𝚜 𝚗𝚘 𝚗𝚎𝚎𝚍 𝚝𝚘 𝚠𝚘𝚗𝚍𝚎𝚛 𝚊𝚗𝚢𝚖𝚘𝚛𝚎. 𝚝𝚑𝚒𝚜 𝚊𝚙𝚙 𝚒𝚜 𝚝𝚞𝚛𝚗𝚒𝚗𝚐 𝚘𝚛𝚍𝚒𝚗𝚊𝚛𝚢 𝚙𝚎𝚘𝚙𝚕𝚎 𝚒𝚗𝚝𝚘 𝚖𝚒𝚕𝚕𝚒𝚘𝚗𝚊𝚒𝚛𝚎𝚜 𝚊𝚗𝚍 𝚑𝚎𝚕𝚙𝚒𝚗𝚐 𝚝𝚑𝚎𝚖 𝚏𝚒𝚗𝚊𝚕𝚕𝚢 𝚕𝚒𝚟𝚎 𝚝𝚑𝚎 𝚕𝚒𝚏𝚎𝚜𝚝𝚢𝚕𝚎 𝚘𝚏 𝚝𝚑𝚎𝚒𝚛 𝚍𝚛𝚎𝚊𝚖𝚜. 𝚑𝚎𝚛𝚎 𝚒𝚜 𝚝𝚑𝚎 𝚕𝚒𝚗𝚔:𝗺𝗼𝗽𝗲𝘁𝗷𝗮.𝗰𝗳
Thomas Fallon
Thomas Fallon Apr 07, 2021 9:32PM ET
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Free market my ***
American Truth
American Truth Apr 07, 2021 9:25PM ET
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If the fed EVER tries to pull the punchbowl, the markets will tank instantly.
CHAD TENDIES
CHAD TENDIES Apr 07, 2021 9:10PM ET
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Forever. They have no choice but to inflate to infinity
 
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