World major economies support $650 bln boost in IMF resources
Fed in March saw brighter outlook, yet underscored patience Proposal still needs approval from the IMF’s board
WASHINGTON, April 8, (AP): Federal Reserve officials were encouraged last month by evidence the U.S. economy was picking up, but they showed no sign of moving closer to ending their bond purchases or lifting their benchmark shortterm interest rate from nearly zero.
Fed policymakers also said they expect inflation will likely rise in the next few months because of supply bottlenecks, but they believe it will remain near their 2% target over the longer run.
“It would likely be some time until substantial further progress toward” the Fed’s goals of maximum employment and inflation at 2% are reached, and “asset purchases would continue at least at the current pace until then,” the Fed said in minutes taken during its March 16-17 meeting. The minutes were released Wednesday after the customary three-week lag.
Economists and market analysts are closely tracking the question of when the Fed might begin to reduce its $120 billion in monthly purchases of Treasurys and mortgagebacked securities, since the Fed is expected to take that step before raising interest rates.
Some analysts expect the Fed will start tapering its bond buys next January, and to take roughly a year to do so, before then considering a rate hike. The bond purchases are intended to keep longer-term borrowing costs low.
The Fed’s policy making committee voted 11-0 at the March meeting to continue the bond purchases and keep its short-term rate at near zero. The Fed last month also signaled it wouldn’t raise rates until after 2023.
Fed officials “generally expected strong job gains to continue over coming months and into the medium term,” supported by low interest rates, the Biden administration’s $1.9 trillion emergency financial package, ongoing vaccinations, and reopening businesses, according to the minutes.
Last month, Fed officials sharply raised their forecasts, projecting that the U.S. economy would grow 6.5% this year, up from 4.2% three months earlier. They now see the unemployment rate falling to 4.5% by the end of this year, below its earlier projection of 5%.
“However,” the minutes said, “the economy was far from achieving (the Fed’s) broad-based and inclusive goal of maximum employment.”
Paul Ashworth, chief U.S. economist at Capital Economics, said that such comments indicate the Fed will likely continue its asset purchases through the end of the year.
Policymakers also underscored the importance of the Fed’s new policy framework, adopted late last summer, which calls for the Fed to make changes in policy “based primarily on observed outcomes, rather than forecasts,” the minutes said.
That means the Fed’s brighter outlook, by itself, doesn’t necessarily change the timetable of when it will begin to pull back on its stimulus. That’s a sharp break from the past, when the Fed often would raise rates on the anticipation of rapid growth, which it feared would push inflation higher.
Fed Governor Lael Brainard, in an interview Wednesday on CNBC after the minutes were released, said the economic outlook “has brightened considerably,” but “we’re going to have to actually see that in the data.”
The meeting came before last week’s March jobs report, which showed a surprisingly strong 916,000 positions were added that month, the most since August, and the unemployment rate fell to 6% from 6.2%.
Still, some Fed bank presidents have stuck to the same message in the minutes. They argue that the economy still needs to improve further before the central bank will pull back on its support for the economy.
“All told, even though the economy is recovering, we still have a long way to go before economic activity returns to its pre-pandemic vibrancy,” Charles Evans, president of the Federal Reserve Bank of Chicago, said Wednesday in prepared remarks.
WASHINGTON, April 8, (AP): Finance officials of the world’s major economies have agreed on a proposal to boost the resources of the International Monetary Fund by $650 billion as a way to provide more support to vulnerable countries struggling to deal with a global pandemic.
The Group of 20 major industrial countries issued a joint statement that also announced the approval of a final six-month moratorium on debt payments by 73 of the world’s poorest countries.
The proposal to increase the IMF’s resources received a boost earlier this year when it got the backing of the Biden administration. The resources are known as IMF Special Drawing Rights and create an asset that countries can use to bolster their own reserves.
The proposal still needs approval from the IMF’s board and then contributions from member countries.
The debt-payment deal extends the moratorium begun last year until the end of this year. But international aid groups expressed unhappiness that the G-20 is saying the extension will be the final one to be offered.
“We’ve seen progress on debt relief and aid, but we still need to solve multiple challenges so countries can get through this crisis,” said Eric LeCompte, executive director of Jubilee USA Network. “It is unlikely that the breathing space indebted countries get with this extension will be enough.”
The G-20 group also lent support to a Biden administration drive to establish a global minimum tax rate for corporations, saying it hoped to achieve a consensus in the group by the middle of this year.
U.S. Treasury Secretary Janet Yellen had urged countries to adopt a minimum corporate tax in a speech on Monday, saying it was needed to stop a “30-year race to the bottom” in which countries had slashed corporate tax rates to attract multi-national businesses.
The Biden administration is proposing
to boost the U.S. corporate tax rate to 28%, up from the current 21% where it had been reduced by a Trump administration tax cut bill approved in 2017. Before it was reduced, the U.S. corporate tax rate stood at 35%. The administration hopes to use the extra corporate tax revenue to help fund increased spending on infrastructure.
Italian Finance Minister Daniele Franco, the chair of the G-20 finance group, said that Yellen had told the group that the Biden administration proposal is consistent with the multinational effort to agree on a minimum tax rate.
Yellen and Federal Reserve Chairman
Jerome Powell represented the United States at the virtual meeting, which was being held in advance of virtual meetings this week of the 190-nation IMF and its sister lending organization, the World Bank.
On Tuesday, the IMF released an updated economic forecast which boosted global growth for this year to 6%, up from a projection of 5.5% in January, with the boost coming in large part from accelerated vaccine rollouts and the $1.9 trillion rescue package the Biden administration pushed through Congress last month.
IMF Managing Director Kristalina Georgieva told reporters Wednesday
that without the massive amounts of support provided by governments, last year’s recession, the worst since World War II, would have been three times more severe.
She said the rebound this year is being powered by the world’s two biggest economies, the United States and China, but that economic fortunes were “diverging dangerously” with poorer nations falling behind.
“A small number of countries led by the U.S. and China are powering ahead,” she said. “Weaker economies are falling behind.”
On trade, the G-20 joint communique said, “We recall our commitment
to fight protectionism and we encourage concerned efforts to reform the World Trade Organization.”
During the Trump administration, the G-20 had dropped language from its communiques pledging to resist moves to erect protectionist trade barriers.
The meeting Wednesday of finance ministers and central bank governors of traditional economic powers such as the United States, Japan and Germany along with emerging economies such as China and India will be followed by a leaders’ summit to be held in Rome on Oct. 30-31.