The US Federal Reserve won’t be changing its key rate until at least 2024 following the two-day meeting that ended in Washington early Thursday morning, Sydney time.
That’s despite inflation forecast to top its 2% target rate this year, an admission that some bond bunnies won’t like as they needlessly fret about cost pressures.
At the same time the central bank sees US economic growth hitting a high of 6.5% this year, thanks to stronger demand and the impact of the $US1.9 trillion stimulus package.
The post meeting statement and forecasts saw Wall Street steady and then move into the green late in the session after trading mixed with some losses ahead of the release of the latest forecasts.
That’s up from the 4.2% forecast in December by the Fed.
The Fed said in its latest set of forecasts that it expects inflation to reach 2.4% in 2021, above its target of 2%, but expects inflation to fall back to around 2% in 2022.
That was up from the 1.8% forecast for 2021 in the Fed’s December forecasts.
Fed chair, Jay Powell later described the rise in inflation this year as “transient” and not meeting the Fed’s standard for a policy change (rate rise in this case).
(The Reserve Bank sees inflation in Australia heading for a similar spike, then fall next year).
The central bank also said it would continue to buy $US120 billion ($A155 billion) in bonds each month to keep longer-term borrowing costs down.
There had been speculation the Fed might have signalled an easing in the monthly bond purchases as a way of indicating its concerns about inflation.
The central bank sees the US unemployment rate falling to 4.5% by year’s – the December forecast was for unemployment of 5%.
That would mean that after all the stimulus spending from government ($US2.8 trillion in the last two packages from Congress) and the Fed, US unemployment rate will still be above the February 2020 Pre-Covid low of 3.5% by the end of this year.
But the improvement in economic activity saw more members of the Open Market Committee change their forecast on interest rates.
According to the so-called ‘Dot Plot’ (which is a graph summarising interest rate forecast by the 18 members of the Committee), seven of 18 officials now expect to raise rates in 2023, compared to five in December.
And four of those seven officials now feel rates may need to rise as soon as next year, a change from zero as of the last projections in December.
But a strong majority is still for no rate rise until 2024.
