US Federal Reserve Chairman Jerome Powell’s dovish message on an incomplete economic recovery won the day when officials met last month, with a record of the gathering showing a unanimous near-term policy outlook, minutes released on Wednesday showed.
“Participants noted that it would likely be some time until substantial further progress toward the committee’s maximum-employment and price-stability goals would be realized,” minutes from the March 16-17 Federal Open Market Committee (FOMC) meeting showed.
Officials left an asset purchase program of US$120 billion per month unchanged at the meeting and forecast that they would keep the benchmark lending rate near zero until at least 2023 to help the US economy heal from COVID-19. That was despite sharply upgrading projections for growth and employment that has had some investors betting the Fed will act sooner.
Photo: Reuters
“After the March FOMC meeting Chair Powell said it wasn’t yet time to start talking about talking about tapering,” JPMorgan Chase & Co chief US economist Michael Feroli wrote in a note to clients. “The minutes to the March FOMC meeting backed him up, as they barely mentioned future prospects for the Fed’s asset purchase program.”
Even with 916,000 new jobs added to the economy last month, the economy is far from the Fed’s goals of maximum employment and sustainable 2 percent inflation.
Still, there is a sense among some officials that vaccine dissemination, trillions of dollars in fiscal support and low interest rates could lead to a stronger-than-expected rebound.
“The angle of a united front is very deliberate,” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington.
Maintaining that unanimity is “dependent on conditions” going forward, he said.
Seven of 18 officials expect the Fed to be in a gradual tightening mode by the end of 2023, projections released at the meeting showed.
Some policymakers are warning investors not to expect the Fed to indefinitely keep policy on an emergency footing.
“I would want to communicate that once it’s clear that we’ve emerged from the pandemic and the Fed has achieved some of these benchmarks we’ve set up, I would rather communicate that they should expect that we will be withdrawing some of this extraordinary level of accommodation,” US Federal Reserve Bank of Dallas President Robert Kaplan said on Wednesday.
The Fed upgraded its forecast from January with real GDP growth expected to exceed potential next year and in 2023, “leading to a decline in the unemployment rate to historically low levels, as monetary policy was assumed to remain highly accommodative,” the minutes said.
It is the kind of hot labor market that Powell has said many times he would like to restore, even while he has pushed aside concerns that it could generate worrisome inflation. The broader committee also seemed to endorse the view.
“Participants expected that inflation would likely move along a trajectory consistent with achieving the committee’s objectives over time, supported by strong aggregate demand, which participants expected would be driven in part by accommodative monetary and fiscal policies,” the minutes said.
Fed Governor Lael Brainard, in an interview with CNBC after the minutes were released, said it was likely that bottlenecks could result in a temporary lift to inflation.
After that, it is “more likely that the entrenched inflation dynamics we have seen for well over a decade will take over,” she said.
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