U.S. Fed keeps interest rates near zero as recovery picks up

Washington, USA  |  XINHUA |   The U.S. Federal Reserve on Wednesday kept its benchmark interest rates unchanged at the record-low level of near zero, as economic recovery gathers momentum on COVID-19 vaccination progress and strong fiscal support.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Fed said in a statement after concluding its two-day policy meeting.

“The sectors most adversely affected by the pandemic remain weak but have shown improvement,” the Fed said, adding the ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.

The central bank pledged to continue its asset purchase program at least at the current pace of 120 billion U.S. dollars per month until the economic recovery makes “substantial further progress”.

The Fed also acknowledged that U.S. inflation had risen, but reiterated this “largely” reflected “transitory factors”.

“Fed sticks to the script and makes case that the increase in inflation is transitory. Fed implies coming changes to its summary of economic projections by stating economic activity and employment has strengthened,” said Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP.

While the recovery has progressed more quickly than generally expected, “it remains uneven and far from complete”, Fed Chairman Jerome Powell said at a virtual press conference Wednesday afternoon.

“For the economy as a whole, payroll employment is 8.4 million below its pre-pandemic level. The unemployment rate remained elevated at 6 percent in March, and this figure understates the shortfall in employment,” he said.

Powell also said that “it is not time yet” to talk about tapering the Fed’s asset purchase program, as it will “take some time before we see substantial further progress” toward the central bank’s employment and inflation goals.

Sarah House and Michael Pugliese, economists at Wells Fargo Securities, noted that the Federal Open Market Committee (FOMC), the Fed’s policy-making committee, left its forward guidance around the federal funds rate and asset purchases unchanged, despite the upgraded read on the economic growth and inflation.

“With risks to the outlook remaining, the meeting statement again indicated that the FOMC will need to see outcomes consistent with its goals, not just forecasts. That will keep the Fed in a holding pattern for months to come,” they wrote Wednesday in an analysis.

The Fed meeting came as U.S. President Joe Biden is expected to announce a 1.8-trillion-dollar package to expand the U.S. social safety net Wednesday night, on top of the 2-trillion-dollar infrastructure investment plan unveiled weeks ago and the 1.9-trillion-dollar relief package enacted in March.

The massive fiscal support, which is expected to help fight the pandemic and bolster the ravaged economy, could also lead to an overheated economy, inflationary pressures, ballooning federal debt and rising interest rates, economists have warned.

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