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Financial News: Fed Still Expects Interest Rates To Remain Unchanged

Fed Still Expects Interest Rates To Remain Unchanged Through 2023

03/17/2021 - 14:37:00 (RTTNews)

(RTTNews) - Updated projections show members of the Federal Reserve expect stronger economic growth and higher inflation this year, although the central bank still expects to keep interest rates at near-zero levels through 2023.

The updated forecasts were released on Wednesday along with the announcement of the Fed's universally expected decision to maintain the target range for the federal funds rate at zero to 0.25 percent.

The central bank also reiterated it plans to continue purchasing bonds at a rate of at least $120 billion per month until "substantial further progress" has been made toward its policy goals.

The Fed said members now expect U.S. GDP to soar by 6.5 percent in 2021 compared to the 4.2 percent spike forecast last December.

The forecast for the pace of growth in core consumer prices, which exclude food and energy prices, was also upwardly revised to 2.2 percent from 1.8 percent.

In its accompanying statement, the central bank acknowledged that indicators of economic activity and employment have turned up recently.

Nonetheless, the median forecast from Fed members predicts interest rates will remain at current levels through 2023.

The Fed once again reiterated that rates will remain unchanged 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 latest forecasts show GDP growth is expected to slow to 3.3 percent in 2022 and 2.2 percent in 2023, while core consumer prices are expected to rise by 2.0 percent in 2022 and 2.1 percent in 2023.

"The updated economic projections released after the Fed's mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren't thinking about thinking raising interest rates," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "With the Fed keen to let inflation run above its target for a while, we expect they will keep rates on hold even if higher inflation proves a little more stubborn than they currently anticipate."

The statement from the Fed once again noted the path of the economy will depend significantly on the course of the coronavirus, including progress on vaccinations.

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