Fed Minutes Reiterate Policy Likely To Remain Unchanged For 'Some Time'
Despite recent signs of strength in the U.S. economy, the minutes from the Federal Reserve’s latest monetary policy meeting indicated the central bank is unlikely to change its ultra-loose monetary policy anytime soon.
Participants in the March meeting acknowledged the improvement in the medium-term outlook for real GDP growth and employment but continued to see the uncertainty surrounding that outlook as elevated.
The minutes showed most participants still viewed the coronavirus pandemic as posing considerable risks to the economic outlook.
New more-contagious virus strains, obstacles in getting sufficient numbers of the public vaccinated, or social-distancing fatigue were among the risks cited by the participants.
“However, given the resilience of the economy in the face of the earlier surge in new COVID-19 cases, hospitalizations, and deaths and the magnitude of fiscal support enacted, the downside risks to the economic outlook were seen as smaller than for the previous projection,” the Fed said.
The Fed added, “The staff viewed the risks of upside inflationary pressures as having increased since the previous forecast and now saw the risks to the inflation projection as balanced.”
With measures of the economy still below pre-pandemic levels, the Fed reiterated that it would likely be “some time” before the central bank considers changing its monetary policy stance.
The minutes said members expect to maintain an accommodative stance of monetary policy until the Fed’s goals of maximum employment and inflation moderately above 2 percent for some time are achieved.
The Fed’s views were largely unchanged from previous months, with the minutes noting outcome-based guidance did not need to be recalibrated often in response to incoming data or the evolving outlook
“In particular, various participants noted that changes in the path of policy should be based primarily on observed outcomes rather than forecasts,” the Fed said.
The minutes also highlighted the recent increase in longer-term Treasury yields, which was attributed to increased investor optimism about the economic outlook and expectations of higher Treasury debt issuance.
The Fed noted market depth became thin and bid-ask spreads widened amid an especially sharp increase in yields on February 25 but said Treasury market liquidity gradually recovered over the following days.
Updated economic projections provided after the meeting showed Fed members now expect U.S. GDP to soar by 6.5 percent in 2021 compared to the 4.2 percent spike forecast last December.
The forecast for the pace of growth in core consumer prices, which exclude food and energy prices, was also upwardly revised to 2.2 percent from 1.8 percent.
In its accompanying statement, the central bank acknowledged that indicators of economic activity and employment have turned up recently.
Nonetheless, the median forecast from Fed members predicts interest rates will remain at current levels through 2023.