As widely expected, the policymaking Federal Open Market Committee also voted to keep short-term borrowing rates steady near zero, while continuing an asset purchase program in which the central bank buys at least $120 billion of bonds a month.
The key changes came in how central bankers view the economic road ahead and what impact that could have on policy.
“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent,” the committee said in its post-meeting statement.
Fed Chairman Jerome Powell said he expects that inflation will rise this year due in part to soft year-over-year comparisons from the early days of the Covid-19 pandemic in early 2020. However, he said that won’t be enough to change a policy that seeks inflation above 2% for a period of time if it helps to achieve full and inclusive employment.
In 2020, the Fed modified those goals to say it would keep policy accommodative until employment not only increases substantially but in a way where benefits are spread among income, racial and gender classes. Dovetailing with that goal is a willingness to let inflation run somewhat above the Fed’s 2% target for an undetermined period to reach the employment goal.
Fed Dot Plot
Below is the dot plot from the March meeting. At the time, 1 Fed official saw a hike in 2022, and 5 saw a hike in 2023.
The Dot plot for March sees four Fed officials expecting hikes in 2022 and seven Fed officials in 2023.
The central tendencies for 2021 sees GDP higher.
The central tendencies went from 3.7% to 50% to 5.8% to 6.6% Unemployment lower,
The central tendencies went from 4.7% – 5.4% to 4.2% – 4.7% PCE inflation higher.
Central tendencies went from 1.7% – 1.9% to 2.2% – 2.4%.
Core PCA four 2021 one from 1.7% – 1.8% to 2.0%-2.3%
In 2022, inflation is modestly higher but still mostly below 2% for headline and core inflation.
GDP growth has a higher upper limit at 3.8% versus 3.5%.
Unemployment is expected be lower at 3.6% – 4% versus 3.8% – 4.6% in December.
Markets have grown skittish lately over worries that inflation pressures may be posing a bigger danger than the Fed thinks.
Market reaction
With the initial market reaction, the USD came under strong selling pressure and the US Dollar Index, which tested 92.00 earlier in the day, was last seen losing 0.25% on the day at 91.6
Reference: CNBC, FXStreet, FX Live
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