The horizon is clearing up in the United States, but the Fed remains cautious. As expected, the US Federal Reserve kept rates unchanged after its monetary policy committee meeting on Wednesday. “The committee plans to maintain an accommodative stance in its monetary policy until these results [la baisse du chômage et une inflation autour de 2 %, NDLR] are achieved, ”the Fed said in a statement.
The US central bank is also staying the course in its asset purchases. It plans to increase its treasury bill holdings by at least $ 80 billion per month and its mortgage-backed securities by at least $ 40 billion, “until substantial progress is made towards the objectives of full employment and price stability set by the committee. “
The “uneven” recovery
The Fed has noted progress in recent weeks in key economic indicators and financial market conditions. And the reopening of the country, as well as support for the economy of the Biden administration, should help support consumption. But, as she points out in her press release, “the trajectory of the economy will largely depend on the evolution of the virus, including progress in vaccination. The current public health crisis continues to weigh on economic activity, employment and inflation and poses considerable risks to the economic outlook. “
“The economic recovery is patchy and far from over,” Jerome Powell said at his press conference. The Fed chairman also believes that a more lasting rise in inflation is needed to change monetary policy. “A momentary increase, as has been the case recently, does not meet our criteria.”
Hikes in 2022?
In the medium term, however, the committee sees grounds for hope. He thus raised his economic forecasts. While he was counting in December on annual growth of 4.2% in 2021, he is now talking about growth of 6.5%. The unemployment rate, currently 6.2%, could be lowered to 4.5% at the end of the year. It would be more than before the crisis but in December, the governors predicted that it would be 5% at the end of 2021. And it would be necessary to wait until 2023 for it to return to its pre-pandemic level, at 3.5%. Finally, inflation could jump above 2% over the year, confirming the fears of some of a slight overheating.
In view of this outlook, members of the Monetary Policy Committee seem increasingly prepared to move upward. Everyone thinks that interest rates will remain close to zero for the rest of 2021. But there are now four – against just one in December – to believe that rates should rise again in the course of 2022.