Fed likely to stress backing for low rates amid pandemic
WASHINGTON » The Federal Reserve this week will likely underscore its commitment to its low-interest rate policies, even as the economy recovers further from the devastation of the pandemic.
Chair Jerome Powell is sure to strike a dovish tone at a news conference after the Fed’s latest policy meeting ends Wednesday. He may, in particular, aim to puncture any speculation that the Fed might soon curtail its aggressive efforts to support the economy, including its bond purchase program that aims to hold down longterm interest rates.
The conditions the Fed has laid down before it would adopt any policy changes aren’t close to being met, so no new actions are expected this week. Still, analysts will scrutinize the Fed’s policy statement and Powell’s comments to reporters to gauge how Fed officials are reacting to recent economic developments.
Since the Fed last met, in mid-December, there has been some good news. The distribution of an effective vaccine has begun and a $900 billion relief package was enacted in late December. President Joe Biden has since proposed another financial support plan — a $1.9 trillion package that will require congressional approval.
In recent months, Powell had repeatedly urged Congress and the White House to provide such stimulus. But he will likely try to avoid sounding overly optimistic about the economy’s prospects for fear of encouraging speculation that the Fed will slow or withdraw its support earlier than expected.
“The emphasis will be on, ‘We’re not out of the woods yet,’ ” said Seth Carpenter, an economist at UBS and a former Fed economist.
Some central bank officials have suggested that they might consider withdrawing Fed stimulus later this year, earlier than investors generally expect, but Powell contradicted that in a public appearance earlier this month. He will likely do so again Wednesday.
Powell also said that the Fed would provide ample notice when it does conclude that it will slow its bond-buying program.
“We will communicate very clearly to the public,” he said, “and will do so, by
the way, well in advance of active consideration of beginning a gradual taper of asset purchases.”
The Fed wants to avoid a repeat of 2013, when thenchairman Ben Bernanke told Congress that the Fed was considering tapering its the bond buys, which caught markets unaware, sharply pushed up longerterm interest rates, and earned the moniker the “taper tantrum.”