Fed Acknowledges Green Shoots, but Recovery Still in Need of Support, Minutes Show By Investing.com

By Yasin Ebrahim

Federal Reserve policymakers continue to back the ongoing pace of monetary support to keep the recovery on track at a time when incoming data point to a brighter outlook on economic activity and employment, according to the Federal Reserve minutes released Wednesday.

At the conclusion of its previous meeting on March 18, the Federal Open Market Committee kept its benchmark rate in a range of  0% to 0.25% and pledged to maintain bond purchases at a $120 billion monthly pace.

At the meeting, the bank, despite acknowledging the recent improvement in the economy and lifting its inflation, maintained its forecast to keep rates near-zero through 2023. Among the 12 FOMC members, four called for a rate hike in 2022.

Market participants also appear to be betting against the Fed’s lower for longer interest rate operandi modus as the economic reopening – aided by speedier vaccine rollouts –  gathers pace.

The Fed futures market now anticipates interest rate hikes in 2022, up from 2024 earlier this this year, amid a step up in inflation.

The 10-year inflation breakevens, a key measure of inflation expectations, are pricing in average annual inflation of about 2.4%, above the Fed’s 2% target.

Yet, there are some on Wall Street who believe the growing fears of runaway inflation and a sooner than expected Fed rate hike or taper of bonds may be overdone somewhat as the global economy is yet to make a meaningful recovery.

“The Fed has changed policy many times in history, but I don’t see it as a big risk. If you look at the global economy, there’s still plenty of flack, Eric Diton, president and managing director at The Wealth Alliance, said in a recent interview with Investing.com. “This not this is not the same world of the Spanish flu in 1918 this is a very interconnected world with regard to trade and economies,” Diton added.

Fed chairman Jerome Powell reiterated in the press conference – that followed the monetary policy meeting – that the central bank will provide ample guidance ahead of any proposed policy tweak.

“We will give a signal that we’re on a path to possibly achieve substantial growth to consider tapering. I think what we’ve learned from the experience of these last dozen years, is to communicate very carefully, very clearly, [and] well in advance …” Powell said.