Fed holds steady even as it nods to ‘strengthened’ recovery

 Fed holds steady even as it nods to ‘strengthened’ recovery

The Federal Reserve held interest rates and its monthly bond-buying program steady on Wednesday, nodding to the US economy’s growing strength but giving no sign it was ready to reduce its support for the recovery.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the US central bank said in a unanimous policy statement at the end of a two-day meeting.

Nevertheless, “the path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the Fed said. “The ongoing public health crisis continues to weigh on the economy and risks to the economic outlook remain.”

The language about the virus reflected a slightly less negative view than the Fed’s description in March, when it said the health crisis “poses considerable risks to the economic outlook.”

Despite the improving economy, the Fed on Wednesday repeated the guidance it has used since December, setting the list of conditions that must be met before it considers pulling back from the emergency support put in place to stem the economic fallout of the coronavirus pandemic in 2020.

The Federal Reserve cited the pace of vaccinations against COVID-19 in the US as a factor in deciding to hold steady on its policies of continuing supports for the US economy.
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That includes “substantial further progress” toward its inflation and employment goals before stepping back from its monthly bond purchases.

Fed Chair Jerome Powell was expected to elaborate later Wednesday on the statement and the central bank’s views about the brightening economic outlook.

US job growth has been accelerating and the Fed expects inflation to rise to its 2 percent target over time, eventually allowing it to trim its $120 billion in monthly bond purchases and raise its target overnight interest rate from the current level near zero.

But even that first step of tapering bond purchases is likely months down the road, and the Fed gave no indication in Wednesday’s statement that there is any rush.

The economy remains more than 8 million jobs short of where it was before the pandemic forced whole industries to shut down in an effort to control the spread of the coronavirus.

The expansion of the COVID-19 vaccination program has contributed to expectations for fast economic growth this year, though the Fed acknowledged that the economy’s prospects will be contingent on continued progress in managing the pandemic.

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