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The Federal Reserve (Fed) warns that the recovery is moderating and interest rates remain intact

2021-01-27T20:07:37.409Z

The US central bank warns that the recovery of the economy depends on the rate of vaccination Jerome Powell, chairman of the US Federal Reserve, in December in Washington.POOL New / Reuters The first meeting of the year of the US Federal Reserve (Fed), which ended this Wednesday in Washington, was also the first under the presidency of Joe Biden. Hence, given the ambitious stimulus plan of the Democrat and his determination to accelerate the vaccination against the coronavirus, the conclu



Jerome Powell, chairman of the US Federal Reserve, in December in Washington.POOL New / Reuters

The first meeting of the year of the US Federal Reserve (Fed), which ended this Wednesday in Washington, was also the first under the presidency of Joe Biden.

Hence, given the ambitious stimulus plan of the Democrat and his determination to accelerate the vaccination against the coronavirus, the conclusions of the meeting have also led to a diagnosis of the viability of the program, and the support necessary for it to take effect.

No one had doubts about keeping the price of money around 0%, a containment that is on the way to a year, but projections were expected about the foreseeable impact that the Biden program will have on an economy with a reserved forecast.

To begin with, his arrival at the White House is already a relief for the Fed, which was forced to actively defend its independence during the term of Donald Trump.

"The reestablishment of the US economy depends on covid-19 and vaccination," the institution has indicated in a statement.

"The pace of recovery of economic activity and employment has moderated in recent months, with weakness concentrated in the sectors hardest hit by the pandemic."

As expected, the Fed is keeping rates in a target range of 0% to 0.25%.

The first reaction was immediate: the fall of the dollar index from 90.50 points to 90.44.

During its last meetings, the Fed has adopted significant changes in its traditional policy, linking any future increase in interest rates to a persistent increase in inflation, as well as any changes in its purchase of bonds worth 120,000 million of dollars a month - which has injected liquidity into financial markets since last March - to "further substantial progress" in employment rates and inflation.

That is, until the economy improves significantly and full employment is reached, something that the pandemic data questions on a daily basis.

The purchase of bonds remains in the amount and pace known, the institution confirmed this Wednesday.

Economic data has barely changed since the last Fed meeting in December, if anything shows a slight worsening, for example in job losses.

Analysts therefore believed that policymakers at the US central bank would likely ignore any suggestion that the economic improvement expected as vaccination progresses, or a possible spike in inflation this spring, will make them reconsider their promise to maintain a loose monetary policy.

This Thursday the GDP data will be known, another relevant indicator.

Biden's announced $ 1.9 trillion plan to combat the pandemic and its economic fallout could fuel faster economic growth in the short term, but still most experts expected the central bank to remain restrained, as inflation remains below the Fed's 2% annual target and employment remains some 10 million below its pre-pandemic level.

The outlook for short-term risks, with a foreseeable “moderate” price increase in spring, according to the Fed, allows for hope for the second quarter of the year if the pace of immunization reaches enough population for the summer, such as Biden promised.

The Fed pulled out all of the artillery nearly a year ago and does not appear willing to recall the anti-coronavirus batteries now, judging from a Jan 15-20 Bloomberg survey of experts on when the Fed will start to slow asset purchases. 25% of the economists surveyed expect the start of the withdrawal of stimuli (QE) in the last quarter of this year;

35%, in the first quarter of 2022, and 25%, in the second quarter of 2022.

Source: elparis

All business articles on 2021-01-27

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