The Federal Reserve Board left the policy unchanged on Wednesday, but raised expectations for the time to first raise interest rates from the bottom. This shows that the recovery in the labor market and rising inflation give policy makers confidence to achieve full employment and stable price targets. Over the next few years.
The Federal Reserve Board of Governors expects to raise rates twice by the end of 2023, when the central bank renewed. Summary of economic forecasts Showed Wednesday. Earlier, median officials expected interest rates to remain close to zero until at least 2024. The Fed currently expects interest rates to rise from 0.1% to 0.6%.
With the economy recovering and federal officials growing strongly in 2021, inflation will accelerate next year and the labor market will grow slightly faster, resulting in a major upgrade.
“Advances in vaccination have reduced the spread of Covid-19 in the United States,” said the Fed. Said in a statement Announced at the end of the June 15-16 policy meeting, it contained some optimistic amendments. “Progress in vaccination is likely to continue to reduce the economic impact of the public health crisis, but risks to the economic outlook remain.”
Federal Reserve Board Chair Jerome H. Powell said at a news conference that “we will soon enter a very strong labor market here” and are more optimistic about the economic outlook than just a few months ago. showed that.
Still, the Fed did not rush to raise interest rates, warning that “whenever a rate hike occurs, policy will remain very accommodative.”
“It would be very premature to discuss lift-off now,” he said, as he did not emphasize the prediction of repetition rates. He warned later in the press conference that the economy was “not out of the woods at this time and it is too early to declare victory.”
After the announcement by the Federal Reserve Board, the shares were sold out and the pace increased after Powell started a press conference at 2:30 pm. The S & P 500 fell nearly 1% just before 3. It surged to 1.56 percent as the Federal Reserve Board of Governors priced the possibility of raising interest rates slightly faster than previously expected.
“This is a pretty big change,” said Michelle Meyer, Dean of the US Department of Economics at Bank of America, after the announcement and before Powell’s remarks. She said the data suggest that higher inflation is offending officials and is eager to roll back policy support sooner.
“Many members of the committee are uncomfortable with what is displayed in the data,” she said, but “the question is where is the core of the committee?”
Economic data has provided a series of surprises since the meeting of the Federal Reserve Board of Governors. Late april, And since it was last released Economic forecast March. Inflation data Coming in earlier than officials expected, with consumers Market expectations for future inflation I climbed.Employer Hire slowly There are a lot of jobs, but they are better than this spring because it takes time for workers to flow into them.
In a new statement, the Fed continued to call for rising inflation to be primarily “temporary.” We have consistently promised to take a patient approach to monetary policy amid rapidly changing economic conditions.
Powell admitted that “inflation was better than expected,” suggesting that it was primarily due to strong consumer demand, coupled with shortages and bottlenecks as the economy resumed.
“Our expectation is that these high inflation readings we are seeing will begin to weaken,” he said, and central banks will cut if prices rise in ways that contradict the Fed’s goals. Monetary policy support added that by being ready to respond.
On Wednesday, the central bank did not change its key policy rate, which has been set at nearly zero since March 2020, allowing households and businesses to keep their borrowings cheap. The Fed will also continue to buy $ 120 billion in government-sponsored bonds each month. This keeps long-term borrowing costs low and can lead to higher stock and other asset prices. Together, these policies will facilitate the flow of money throughout the economy and stimulate stronger demand that will help accelerate growth and the recovery of the job market.
Authorities have promised to continue to support the economy until the pandemic shock lags far behind the United States. Specifically, he says he wants to make “substantial” progress towards the two economic goals of maximum employment and stable inflation before delaying bond purchases. The standards for raising interest rates are even higher. Officials said they hope to fully recover the job market and bring inflation back on average to an average of 2% over time before raising interest rates from the bottom.
Based on new central bank forecasts released Wednesday, the Fed’s median forecast is to reach these targets by late 2023. The Federal Reserve Board’s so-called interest rate forecast dot plot showed that more than half of the 18 officials expected interest rates to rise by the end of the year. It is not half, but it is expected to increase by one or two in 2022.
The Federal Reserve Board has also fine-tuned their economic forecasts. They are currently seeing an average of 3.4 percent inflation in the last three months of 2021 before removing volatile food and fuel. They expect the headline inflation gauge to recede rapidly, but will drop to 2.1% next year and 2.2% in 2023.
Wall Street wants to hear the Fed’s latest inflation valuation as it seeks to determine if the central bank could bring back economic support sooner than expected. If that happens, it can squeeze stock prices and disrupt the bond market.
The Fed’s view of inflation is also being closely watched in Washington as President Biden seeks parliamentary support for an ambitious and costly economic agenda.
Sustainably high inflation can make it more difficult for Democrats to claim additional spending on priorities such as infrastructure, even if the proposed spending gradually diminishes over time. There is. Republicans have exploded price spikes as a sign of economic mismanagement, but the White House argues that higher prices are likely to decline over time.
Treasury Secretary Janet Yellen said in a testimony at the Senate Finance Committee Wednesday that “the current surge in inflation reflects the difficulty of resuming a closed economy. I’m doing it. ”
A slowdown in bond purchases could be the first step in the process towards more normal monetary policy setting. Because the economy is healed number” Some officials from the Federal Reserve Board’s April meeting suggested that they want to start talking about how and when to start the so-called taper immediately, a few minutes from that rally.
The Federal Reserve Board buys $ 80 billion in Treasury bonds and $ 40 billion in mortgage-backed securities each month.These purchases helped maximize central bank balance sheet holdings About $ 8 trillion — Approximately twice the size of the summer of 2019.
Stakeholders including Robert S. Kaplan, President of the Federal Reserve Bank of Dallas, and Patrick HarkerThe President of the Federal Reserve Bank of Philadelphia suggests that he considers it appropriate to proceed with these discussions. Other important policymakers sounded patient, saying Fed President John Williams was “not close to a substantial further progress marker” on June 3. Yahoo Finance Interview..
Powell said on Wednesday that authorities “began talking about talks” to delay the purchase of these bonds, but the central bank is not ready to start tapering immediately.
“We hope we can talk more about timing as we see more data,” Powell said.
A few Republican politician asked As the economy resumes and growth recovers, the Fed suggests that the United States has long-term central bank support, whether or not urgent monetary policy setting continues.
This is partly due to its new policy strategy. After the recession of 2007-2009, the economy has grown rapidly over the years, inflation has fallen and threatened a downward spiral. With that in mind, the Fed took a new approach to monetary policy last summer. It aims for a period of slightly higher inflation, while aiming for full employment as a “broad and comprehensive” goal.
Given that new framework, the Fed is prepared to tolerate inflation periods in excess of 2%.Given that, it’s now relevant Priority inflation gauge It came in at 3.6% year-on-year in April and could be even higher in May.The more up-to-date consumer price index 5% increase Period from 1 year to last month as compared to last year’s very low readings.
Authorities expect the current price surge to prove temporary, one-off data quirks and the fact that demand is recovering faster than the supply chain exiting the pandemic. The market seems to share that view widely. Slightly high inflationThe recent rise in expectations seems to be stable at a level that is probably in line with the Fed’s goals.
Still, Washington’s Wall Street strategists and politicians are similarly more concerned about sustained price pressure as Fed officials rise steadily as some sticky prices in the real economy (such as shelter costs) rise steadily. We are monitoring the signs that we have started to do so.
That can be bad news if inflation persists and the Fed slows the economy and has to raise interest rates to curb price pressures. Rapid interest rate adjustments have a proven track record of causing a recession that unemploys vulnerable workers.
However, the Fed has sought to balance the risks in setting policies and has so far seen the risk of early withdrawal of support as something to avoid. Millions of jobs Still missing since the beginning of the pandemic, monetary policy could help keep the economy recovering vigorously, increasing the likelihood that evacuated employees will find new jobs.
Alan Rappeport and Matt Phillips contributed to the report.
Federal Reserve expects to raise interest rates in 2023
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