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FOMC Minutes: Full Support for Powell Incentive Plan; most important employment data

Federal Reserve Governor Jerome Powell’s view that the economic recovery is not yet complete was unanimously supported as a short-term policy outlook at a meeting of banking officials last month.

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“Participants stated that it will likely take some time to make significant progress toward the committee’s maximum employment and price stability targets,” noted the Federal Open Market Committee meeting notes released Wednesday March 16-17.

Authorities left the $ 120 billion per month asset purchase program unchanged at the meeting and predicted that they would keep the benchmark interest rate close to zero until at least 2023 to help the US economy recover. of Covid-19. This is despite strong growth and employment forecasts that have created the expectation of some investors that the Fed will act sooner.

JPMorgan Chase & Co. “After the FOMC meeting in March, Chairman Powell said that it was not yet time to start talking about reducing incentives,” wrote US chief economist Michael Feroli in a note. to the clients. “The minutes from the March FOMC meeting supported it as they barely mentioned the future prospects for the Fed’s asset purchase program,” he said.

Even with 916,000 new jobs added to the economy last month, the economy is far from the Fed’s maximum employment and sustainable inflation targets of 2%. Still, some officials have the feeling that vaccine distribution , trillions of dollars in financial support and very low interest rates could lead to a stronger than expected recovery.

“The perspective on common ground from Fed officials is very clear,” says Derek Tang, an economist at LH Meyer / Monetary Policy Analytics in Washington. Maintaining consensus also depends on forward-looking conditions, ”he said.

Closing hour

According to estimates released at the March meeting, seven of 18 officials expect the Fed to be in gradual adjustment mode by the end of 2023. Some policy makers are warning investors not to expect the Fed to keep policy on urgent ground. indefinitely.

“When it is clear that we have emerged from the pandemic and have met some of the employment and inflation criteria that we have set ourselves as the Fed, I would prefer to convey to you that you should expect us to withdraw some of this extraordinary level of support. “Dallas Fed Chairman Robert Kaplan said Wednesday. saying.

In the minutes, it was stated that the Fed increased its forecast starting in January, and real GDP growth is expected to exceed potential in 2022 and 2023, and “assuming that monetary policy remains highly compromised, which will cause the unemployment falls to historically low levels. “

The warm job market, which Powell said he wants to regain many times over, is getting support from the broad commission, putting worrying inflation concerns aside.

In the minutes, it was stated that with the strong aggregate demand expected with supportive monetary and fiscal policies, it is most likely that inflation will advance on a consistent path with the achievement of the committee’s goals.

Fed Chairman Lael Brainard said in an interview with CNBC after the minutes were released that bottlenecks are likely to cause a temporary spike in inflation. However, the president added that from now on “the established inflationary dynamics that we have seen for more than a decade is more likely to come into play.” The Fed has almost missed its 2% annual inflation target since it announced it in 2012.

Interest rates are weighing up the likelihood of an interest rate hike in the second half of 2022. Michael Gapen, chief US economist at Barclays in New York, said part of the tension came from uncertain outlooks mapped against uncertainty about how the Fed will respond to actual data.

As markets move forward, Brainard noted, Fed policy will depend on results or actual data rather than a prediction of when they will hit their targets.

“The direction of our monetary policy is based on results, not appearances,” Brainard said. saying. “We are missing more than nine million jobs from where we were before Covid.”

Bloomberg

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