Fed keeps rates stable at first meeting in 2021

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Fed keeps rates stable at first meeting in 2021

By Yasin Ebrahim

GossipMantri.com – The Federal Reserve left interest rates unchanged on Wednesday after the conclusion of its first meeting of the year.

The Federal Open Market Committee kept its benchmark rate in a range of 0% to 0.25% and maintained its monthly bond buying pace of $ 120 billion.

“The trajectory of the economy will depend greatly on the evolution of the virus, including progress in immunization. The ongoing public health crisis continues to weigh on economic activity, employment and inflation, and poses considerable risks to the economic outlook, ”the Fed said in its statement.

The unchanged rate decision comes as the near-term economic backdrop has weakened at a time when consumers appear to be reducing the hatches following a slowing labor market recovery.

But this weakness is likely to prove transient, as the pace of the recovery is expected to pick up in the second half of the year, thanks to ongoing efforts to roll out vaccines and additional support from the fiscal stimulus.

Forecasts of a stronger recovery, driven by pent-up consumer demand, fueled fears that the Fed might be forced to reduce its monthly bond buying pace by $ 120 billion, or quantitative easing, sooner. than expected to curb inflationary pressures.

Earlier this month, however, Fed Chairman Jerome Powell downplayed the risk of runaway inflation, indicating that the rebound in inflation after the pandemic will likely be ad hoc.

“The real question is how big is this effect [post-pandemic rise in prices] is going to be and will be persistent… it is clear that a one-time price increase is very unlikely to cope with still high inflation, ”said Powell at a virtual event sponsored by the Bendheim Center for Finance from Princeton on January 15.

At its previous meeting in December, the FOMC said it was in no rush to raise its benchmark rate anytime soon, at least until 2023.

Market participants should turn their attention to Powell’s press conference at 2:30 p.m. ET, for more information on the outlook for the economy and the conditions that may justify reducing QE in the future.

During the press conference, Powell is likely to “reinforce the idea that any discussion of cutting back on Fed asset purchases is premature,” Daiwa Capital Markets said.

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