Categories Analysis, U.S. Markets News

Federal Reserve keeps policy interest rate unchanged

Dovish stance reinforced, positive growth forecast

Vishnu Beri

The Federal Reserve maintained a status quo in its policy interest rate on Wednesday, leaving it at the near-zero level it was lowered to in the last policy meet. Even though the central bank acknowledged that the U.S. economy is expected to grow at an increased pace in the near term, it maintained that there was no likelihood of interest rate hikes till 2023.

The Federal Open Market Committee’s (FOMC) optimistic outlook for inflation and GDP growth was accompanied by lowered expectations for the rate of unemployment.  The Federal Reserve also announced its intention to continue with its asset purchase program, the monthly purchase of bonds worth at least $120 billion.

Present tense

The Federal Reserve’s two-day policy meeting this week comes against an interesting backdrop – rising expectations of a speedy recovery of the U.S. economy owing largely to the rollout of the coronavirus vaccine, yields on U.S. 10-year Treasury notes rising rapidly, escalating interest rates and risk of inflation.

The release of the President Biden’s $1.9 trillion economic rescue package only a few days ago, though welcomed by many, has added to elevated government borrowings and a burgeoning fiscal deficit. The U.S. Government has spent $5 trillion on economic stimulus packages till date.

President Biden’s $1.9 trillion stimulus plan: The price to be paid for relief

Federal Reserve Chairman Jerome Powell recently gave an indication of his intention to continue with an easy monetary policy, when, at the Senate Banking Committee held in February, he was quoted, “We’re 10 million jobs below where we were in February of 2020. 10 million payroll jobs. So, there’s a long way to go,” he said. “Monetary policy is accommodative, and it needs to continue to be accommodative … right now, we’ve had three months (averaging) 29,000 jobs a month. It’s not very much progress.”

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