For the Fed, the time is not yet for a rate hike

Posted on Apr 28, 2021, 8:48 PMUpdated Apr 28, 2021, 9:47 PM

No surprise to the Fed. Unanimously, the members of the monetary policy committee decided on Wednesday to leave the level of key rates unchanged, between 0 and 0.25%. “The evolution of the economy will depend largely on the evolution of the virus, including the progress made in vaccination. The ongoing public health crisis continues to weigh on the economy, and risks continue to weigh on the economic outlook ”, justified the central bank in a press release.

On the eve of the publication on Thursday of the first estimate of the US growth figure for the first quarter, the central bank still recognizes the clear improvement in the situation. “In a context of progress in terms of vaccination and strong political support, the indicators of economic activity and employment have strengthened”, notes the press release. “The sectors most affected by the pandemic remain weak but have shown an improvement”.

“Transient factors”

Inflation rebounded, but “Mainly due to transient factors”, judge the Fed. And the level of employment is still very significantly lower than that observed before the coronavirus crisis, with 8.4 million fewer jobs compared to early 2020. Federal Reserve Chairman Jerome Powell is not sure. thus not overly worried about the rise in real estate prices, linked to a lack of supply, or bottlenecks in the supply of certain sectors or the initial difficulties of certain companies to recruit. “During the last period of expansion, the labor supply increased. I think we will see people introduce themselves “, he judged during the press conference which followed the publication of the press release. In March, more than 900,000 jobs were created and the unemployment rate fell to 6% of the labor force, but it remains 2.5 points above the start of 2020.

The Fed, whose mandate is to maximize employment and maintain inflation at 2% over time, believes that a little time will pass before a rate hike. “If inflation remains below this long-term target, the Committee will strive to achieve inflation moderately above 2% for a period of time, so that inflation averages 2% over time and long-term inflation expectations remain firmly anchored at 2% ”, specifies the central bank. Faced with questions from some experts on the overheating of the economy caused by successive stimulus plans, Fed Chairman Jerome Powell insisted: “No one should doubt it, we will use our tools” in the event of persistent inflation above 2%.

The debate had rather focused, in recent days, on the conditions for a gradual reduction in its asset purchases. In the amount of 120 billion dollars per month today, they make it possible to ensure the proper functioning of the financial markets and the financing of the economy. Today, “Overall financial conditions remain accommodative, in part thanks to measures to support the economy and to credit flows to American households and businesses”, notes the central bank. She intends to continue buying treasury bills (for $ 80 billion per month) and mortgage-backed securities (for $ 40 billion). A reduction in the Fed’s asset purchase program will not take place until “Further substantial progress” economy, Jerome Powell warned. “It will take a little while”.

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