March 17, 2021
20:09
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The US central bank (Fed) wants to maintain its zero interest rate policy for another three years, although the economy is recovering much faster than expected and inflation is rising.
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Fed executives have become much more optimistic about the US economy in recent months, their new outlook shows. They significantly increased their growth forecast for 2021 from 4.2 to 6.5 percent. Economic activity has never grown so much since 1984. High growth will cause the unemployment rate to fall faster than expected to 4.5 percent at the end of this year and 3.9 percent at the end of next year.
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The central bank expects the highest economic growth since 1984 this year.
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The vigorous economic recovery is also accelerating inflation. Fed executives see this rise to 2.4 percent in 2021 and then fall back to around 2 percent.
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“The improvement in the economic outlook is a result of advances in coronavirus vaccination and fiscal policies,” Fed Chairman Jerome Powell said at a news conference. In the US, 22 percent of the population has already received at least one shot, and Congress last week approved a $ 1,900 billion stimulus plan.
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Higher long-term interest
Unlike the directors of the European Central Bank (ECB), US central bankers are not concerned about the recent hike in long-term interest rates. They note that the financial indicators generally remain favorable. The improvement in the economic outlook and growing inflation fears have pushed the US ten-year interest rate up from 0.92 to 1.64 percent since the beginning of this year.
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We want to see progress in the effective numbers. Predictions are not enough.
Jerome Powell
Chairman Fed
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Despite the vigorous economic recovery and the rise in inflation, the Fed does not intend to reduce its stimulus in the foreseeable future. Powell: ‘The economy is still a long way from the goals of maximum employment and price stability. There are 9.5 million fewer jobs than before the pandemic, the unemployment rate of 6.2 percent remains high and inflation remains below 2 percent. We want to see progress in the effective numbers. Predictions are not enough. ‘
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Zero interest policy
That’s why the Fed continues to buy at least $ 80 billion in government bonds every month and at least $ 40 billion in repackaged mortgages. “It’s too early to talk about tempering those purchases,” Powell stressed. “If we see that the numbers are on the right track, we will say so, well before we make a decision to reduce purchases.”
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7 out of 18 directors think an interest rate hike before the end of 2023 is appropriate.
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In addition, the central bank signals that it plans to continue the zero interest policy at least until the end of 2023. In recent days, speculation has emerged that the Fed would hint at a first rate hike in the course of 2023. Seven of the 18 directors believe an interest rate hike in the next three years is appropriate, up from five in December last year. That is remarkable. If the economic outlook of the drivers is correct, the Fed will already reach its inflation target and maximum employment before 2023.
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US equity markets responded positively to the message that the Fed will maintain its zero interest policy for a long time to come. The S & P500 and Nasdaq turned loss into profit, closing 0.3 and 0.4 percent higher, respectively. The dollar weakened, making the euro three quarters of a cent more expensive to $ 1.198. The ten-year interest rate fell slightly to 1.64 percent.
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