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Financial News: Fed Acknowledges Improving Economy, Rising Inflation But L

Fed Acknowledges Improving Economy, Rising Inflation But Leaves Policy Unchanged

04/28/2021 - 14:29:00 (RTTNews)

(RTTNews) - Citing progress on Covid vaccinations and strong policy support, the Federal Reserve on Wednesday updated its assessment of the U.S. economy but maintained its ultra-easy monetary policy as widely expected.

A statement from the Fed noted indicators of economic activity and employment have "strengthened," which reflects a modest upgrade from last month, when the central bank said the indicators have "turned up recently."

The Fed also said the sectors most adversely affected by the coronavirus pandemic remain weak but have shown improvement.

After previously saying inflation continues to run below 2 percent, the Fed now acknowledges that inflation has risen but largely attributed the increase to "transitory factors."

The statement from the central bank also said risks to the economic outlook remain due to the ongoing public health crisis, although that reflects an improvement from last month, when the Fed cited "considerable risks to the economic outlook."

Despite the improvements mentioned in the statement, the Fed once again kept the target range for the federal funds rate at 0 to 1/4 percent.

The Fed also reiterated that it expects rates to remain at near-zero levels until labor market conditions have reached levels consistent with its assessments of maximum employment and inflation is on track to moderately exceed 2 percent for some time.

The central bank also said it plans to continue its bond purchases at a rate of at least $120 billion per month until "substantial further progress" has been made toward its goals of maximum employment and price stability.

Paul Ashworth, Chief US Economist at Capital Economics, said there is nothing in the announcement to change his view that the Fed won't begin to taper its asset purchases until the start of next year and won't begin to raise interest rates until late 2023.

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