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Fed Sees Brighter Outlook, but Keeps Rates Steady; No Hike Through 2023

Stock MarketsMar 17, 2021 02:23PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com - The Federal Reserve kept interest rates and its monthly pace of bond buying unchanged Wednesday, and continued to signal that rates will remain near-zero through 2023 even as it acknowledged an improved economic backdrop.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25% and said it would continue its $120 billion monthly bond purchases.

"Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent," The Fed said in a statement.

The central bank's policymakers appear in no hurry to hike rates, continuing to back rates to remain near-zero through 2023.

The Fed’s interest-rate outlook for 2021 through 2023 was 0.1%, unchanged from previous projections in December, the Fed’s Summary of Economic Projections showed.

The unchanged guidance on interest rates comes even as the Federal Reserve upped its outlook on growth and inflation in the wake of an improving economic backdrop amid a boost from stimulus and vaccine deployments.

The economy is expected to grow by 6.5% in 2021, and 3.3% in 2022, up from previous estimates of 4.2% and 3.2% respectively.

The Fed's efforts have been helped by a wave of unprecedented pandemic fiscal relief measures undertaken by the U.S. government. The latest fiscal relief package, the $1.9 trillion American Rescue Plan, together with the faster pace of vaccine roll outs have added fuel to the recovery.

But the improving economic backdrop has sparked inflation and U.S. bond yields into life, stoking speculation over whether the Fed will have to tighten policy sooner than expected.

The pace of inflation is forecast to improve to 2.4% in 2021, and 2.0% in 2022, compared with prior estimates of 1.8% and 1.9% respectively. Looking ahead to 2023, inflation is projected to reach the 2.1% target, up from 2% previously, though the Fed has reiterated that it would let inflation run above target for some time.

The updated guidance on inflation is in keeping with the Fed's narrative that the post-reopening inflation boom will be short-lived.

The second part of the Fed's dual mandate - to achieve maximum employment – has also justified its accommodative stance somewhat as the unemployment rate at 6.2% remains above pre-pandemic levels.

The unemployment rate for the 2021 is expected to come in at 4.5%, down from 5% previously, and fall further to 3.9% next year, down from a previous estimate of 4.2%. The unemployment rate was estimated to improve further, and eventually drop to 3.5% in 2023, down from a prior estimate of 3.7%.

Looking ahead, market participants expect the Fed to stick with its commitment to let inflation run hot, allowing bond yields to move higher as the central bank looks to achieve full employment.

“Breakevens are starting to price over 2% to almost 2.3% inflation so the market is fully expecting inflation, though I believe that the Fed is going to stay true to their words,” David Wagner, a portfolio manager at Aptus Capital Advisors, said in an interview with Investing.com. "The Fed is in a tough spot and isn't renowned for being proactive ... and will likely let the market push rates higher until something really breaks before [deciding] to act."

Fed chairman Jerome Powell suggested that the tapering was still a ways off as the economy has yet to achieve substantial economic growth. An eventual taper of bond purchases will be signaled well in advanced, the fed chief added.

"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.

Fed Sees Brighter Outlook, but Keeps Rates Steady; No Hike Through 2023
 

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Comments (27)
Sunilkumar Jamuda
Sunilkumar Jamuda Mar 17, 2021 8:12PM ET
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What will be the mkt sentiment today ?
Oscar Yerena
Oscar Yerena Mar 17, 2021 8:12PM ET
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freaking rocket ship!!! 🚀
Dmitri Park
Dmitri Park Mar 17, 2021 7:54PM ET
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I now understand. Want to earn money? Then act exactly opposite what comments say
Robert Cox
Robert Cox Mar 17, 2021 7:54PM ET
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Want to make money? Disregard common sense and logic, trade accordingly.
Dan Demy
Dan Demy Mar 17, 2021 7:05PM ET
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Let’s see FED on 3.5 inflation!
Mohammad Atif
Mohammad Atif Mar 17, 2021 7:03PM ET
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considering economy recovery with not rates hike... dollar backkk
MK MK
MK MK Mar 17, 2021 5:37PM ET
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Greedy yankies try to steal goods from other countries again. Sell USD to the ground, so those bustards will have to pay 2 times more for imported goods. Then they will note inflation
TL Chan
TL Chan Mar 17, 2021 5:01PM ET
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Hair not long enough for tapering, Fed said. It added that I am not going to cut your hair until 2023 no matter how long your hair is. Or, even I know most of you don't need the drug, but since you said you feel needing the drug as comfort food, I am prescribing it anyway and let us have the drug till 2023 and don't worry about the withdrawal syndromes, even i know you have to face that day anyway. For those Zombies, just keep them alive, even they are eating up our resources and productivity ! What are these people in US doing?
CHAD TENDIES
CHAD TENDIES Mar 17, 2021 4:50PM ET
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It’s frightening to imagine the end game of all this
Larry Deangelis
Larry Deangelis Mar 17, 2021 4:21PM ET
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If there is no inflation why did gold and crypto go up? BS
Jon Bal
Jon Bal Mar 17, 2021 3:36PM ET
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so grandma will have to shack up with 4 other grandmas and pool their social security money to pay rent..doh!
peter neal
peter neal Mar 17, 2021 3:16PM ET
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They will have to add more than $ 120 Billion monthly to buy the 30 year Bond along with junk Corporate Debt
George Pichurov
George Pichurov Mar 17, 2021 3:11PM ET
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Through 2023 only? Definitely not enough. I insist it till 2029.
Darryl Allen
Darryl Allen Mar 17, 2021 3:11PM ET
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oh and minimum wage should be $100 to eliminate poverty
gary leibowitz
gary leibowitz Mar 17, 2021 2:40PM ET
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Speech ignoring current circumstance and pushing the dollar lower for now. Market forces will prevail and reverse the dollar much higher and yields higher. Setting up for a shock to the system. As expected though. FED can't do anything to rock the boat. Seem the tidal wave will do that for them.
Mitchel Pioneer
Mitchel Pioneer Mar 17, 2021 2:28PM ET
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So the FED not only leaves the IV in, but adds some extra juice.  How much further will the US Ponzi Scheme, biggest investment joke in the world, get criminally inflated now?
Notvery Goodathis
Peteymcletey Mar 17, 2021 2:27PM ET
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actual inflation will be 10-20%. not the fake inflation that they changed multiple times over the past 4 decades.
Abdallah Saidi
Abdallah Saidi Mar 17, 2021 2:23PM ET
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Naphat Thematma
Naphat Thematma Mar 17, 2021 2:22PM ET
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So stocks will rise again
Me comment
Me comment Mar 17, 2021 2:22PM ET
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All the angst from the top analyst about rate increase were done to line their pockets when investors panicked, when in reality their were no reason for them to talk up higher rates then that.
Amy Awin
Amy Awin Mar 17, 2021 2:17PM ET
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toilet paper
Stan Smith
Stan Smith Mar 17, 2021 2:16PM ET
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Here we go...with the Brighter Outlook/Optimism nonsense
Humphrey Katungu
Humphrey Katungu Mar 17, 2021 2:13PM ET
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but is it difficult to operate here in Zambia
Manish Manish
Manish Manish Mar 17, 2021 2:13PM ET
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will not raise rates untill Q2 atleast, may be extended till Q3 too
Me comment
Me comment Mar 17, 2021 2:13PM ET
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of 2023 not 2021.
Gustavo Lopez
Gustavo Lopez Mar 17, 2021 2:09PM ET
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Sale those puts ;)
Aman Shah
Aman Shah Mar 17, 2021 2:09PM ET
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Not sure, what government is doing to control current economy situation, How many time Govt. will print money!! for what to save heir government in rule!! Do you really think all debt currently we have and keep rising will lead us where???
Cal Lowe
Cal Lowe Mar 17, 2021 2:08PM ET
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Bull trap! Next week will say oops we cant hold this steady any longer
Osemudiameh Taiwo
Osemudiameh Taiwo Mar 17, 2021 2:08PM ET
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Osemudiameh Taiwo
Osemudiameh Taiwo Mar 17, 2021 2:08PM ET
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Stan Smith
Stan Smith Mar 17, 2021 2:08PM ET
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Nice Spin...they have to keep rates low or the markets will implode. As for the Economy warming up....well...c;mon. Almost 50K small businesses have disappeared forever that's over 40% of GDP. Stop pumping stocks and start telling the truth...
Matt Kay
Matt Kay Mar 17, 2021 2:08PM ET
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Billionaires have the fed and govt by the cohones. Stonks are no longer allowed to go down.
Edward Chong
Edward Chong Mar 17, 2021 2:08PM ET
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yeap there will be correction along the way. but it wont crash like most people hope.
 
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