The Atlanta Journal-Constitution
Fed leaves rates as is amid economic ‘risks,’ vows more bond buys
Data out today expected to show gradual healing in first quarter of 2021.
The Federal Reserve on Wednesday left interest rates at rock bottom and pledged to continue buying government-backed bonds at a steady pace as it tries to support the economy’s recovery from the coronavirus downturn.
At the same time, the central bank painted a sunnier image of the American economy, which is climbing back from a sudden and severe recession caused by state and local lockdowns meant to contain the coronavirus.
“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the policy-setting Federal Open Market Committee said in its post-meeting statement. “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.”
After reaching a low point a year ago, employment is rebounding, consumers are spending and the outlook is increasingly optimistic as vaccines become widespread.
Data that will be released today is expected to show gradual healing in the first three months of the year, which economists think will give way to rapid gains in the second quarter.
Fed Chair Jerome Powell, speaking at a news conference following the meeting, said that vaccinations and “unprecedented fiscal support” had helped the economy show improvement, even in the areas most adversely affected by the virus.
“While the level of new cases remains concerning,” he said, “continued vaccinations should allow for a return to more normal economic conditions later this year.”
Still, Fed officials have signaled that they will keep interest rates low and bond purchases going at the current $120 billion-permonth pace until the recovery is further along. When it comes to government-backed bond buying, a policy meant to make many kinds of borrowing cheap, the Fed has said it would like to see “substantial” further progress before dialing it back.
The hurdle for raising rates is even higher: Officials want the economy to return to full employment, achieve 2% inflation and expect inflation to remain higher for some time.