The Federal Reserve decided against raising interest rates, even as it predicts the economy will continue to roar back from its pandemic-induced slump.
The Wednesday news follows a two-day policy meeting in Washington, D.C., which comes as economic conditions continue to beat expectations.
The Fed’s March forecast was even rosier than its December one, and it predicted that unemployment would fall to 4.5% by the end of the year and that real GDP would rise to 6.5%, a significant increase from the 4.2% the board had projected in December.
POWELL SAYS FED EXPECTS INFLATION RISE THIS YEAR TO BE ‘NEITHER PARTICULARLY LARGE NOR PERSISTENT’
Even with those projections, the Fed has said it doesn’t intend to move away from its aggressive stance of keeping short-term interest rates near zero for years, even though some worry that continuing that policy could induce too-high inflation.
“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the report reads. “The sectors most adversely affected by the pandemic remain weak but have shown improvement.”
A noteworthy change from last month’s report was that while the Fed previously said that the current health crisis poses “considerable risks to the economic outlook,” in Wednesday’s report, it simply stated that “risks to the economic outlook remain” as a result of the pandemic.
“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the central bank said.
The Fed has kept interest rates at ultra-low levels since the beginning of the pandemic, and Chairman Jerome Powell has said that he intends to hold off on changing that tack until the United States reaches 2% sustained inflation and the employment rate peaks.
The central bank does predict that inflation will breach that 2% threshold by the end of the year, although it projects that it will sink back down in 2022. Earlier this year, Powell said that “a couple of quarters, or even more than that, of prices being above 2%” wouldn’t be enough to change the thinking on inflation expectations.
Wednesday’s Fed statement follows a better-than-expected March jobs report. The Bureau of Labor Statistics reported that 916,000 new jobs were added in March while the unemployment rate sunk to 6%. That figure is still worse than the 3.5% the U.S. had in February, a month before COVID-19 took hold.
The February jobs report also beat expectations, adding 379,000 jobs, a figure well above the fewer than 200,000 new jobs that economic forecasters had predicted.
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As more people get vaccinated, an ever-larger share of the population is willing to spend money on traveling and restaurants, two of the industries hit the hardest by the pandemic. People also have more money to spend because most were given $1,400 stimulus checks as part of Biden’s colossal $1.9 trillion COVID-19 recovery package.
