Fed expects key rate at near zero through 2023
The Federal Reserve foresees the economy accelerating quickly this year yet still expects to keep its benchmark interest rate pinned near zero through 2023, despite concerns in financial markets about potentially higher inflation. (March 17)
WASHINGTON – The Federal Reserve is keeping its ultra-low interest rate policies in place, a sign that it wants to see more evidence of a strengthening economic recovery before it would consider easing its support.
In a statement Wednesday, the Fed said the economy and job market have “strengthened,” and while inflation has risen, Fed policymakers ascribed the increase to temporary factors.
The Fed left its benchmark short-term rate near zero, where it’s been since the pandemic erupted nearly a year ago, to help keep loan rates down to encourage borrowing and spending. It also said in a statement after its latest policy meeting that it would keep buying $120 billion in bonds each month to try to keep longer-term borrowing rates low.
The U.S. economy has been showing unexpected strength in recent weeks, with barometers of hiring, spending and manufacturing all surging. Most economists say they detect the early stages of what could be a robust and sustained recovery, with coronavirus case counts declining, vaccinations rising and Americans spending their stimulus-boosted savings.
In March, employers added nearly 1 million jobs – an unheard-of figure before the pandemic. And in April, consumer confidence jumped to its highest level since the pandemic flattened the economy in March of last year.
The quickening pace of growth, on top of additional large spending packages proposed by President Joe Biden, have raised fears among some analysts that inflation, long quiescent, could rise uncomfortably fast. Raw materials and parts, from lumber to copper to semiconductors, have spiked in price as demand has outstripped the ability of suppliers and shippers to keep up.
Some companies have recently said they plan to raise prices to offset the cost of more expensive supplies. They include the consumer products giants Procter & Gamble and 3M as well as Honeywell, which makes industrial and consumer goods. Fed Chair Jerome Powell has said he expects supply bottlenecks to lead to temporary price increases, rather than to a prolonged bout of accelerating inflation.
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