Fed expects to keep key rate near 0

WASHINGTON >> The Federal Reserve foresees the economy accelerating quickly this year yet still expects to keep its benchmark interest rate pinned near zero through 2023, despite concerns in financial markets about potentially higher inflation.

With its brightening outlook, the Fed on Wednesday significantly upgraded its forecasts for growth and inflation. It now expects the economy to expand 6.5% this year, up sharply from its previous projection in December of 4.2%. And the Fed raised its forecast for inflation by the end of this year from 1.8% to 2.4% after years of chronically low price increases.

The Fed also said it would continue its monthly purchases of $120 billion in bonds, which are intended to keep longer-term borrowing costs low.

On Wall Street, investors registered their approval of the Fed’s low-rate message, sending stock indexes higher. And the closely watched yield on the 10year Treasury note, which has surged in recent weeks on inflation concerns, declined slightly.

Still, the Fed’s upgraded forecasts raised questions about what would cause it eventually to raise its key short-term rate, which affects many consumer and business loans. As the economy strengthens, the policymakers think the unemployment rate will drop faster than they thought in December: They foresee unemployment falling from its current 6.2% to 4.5% by year’s end and to 3.9%, near a healthy level, at the end of 2022.