A Quick Fed Update

In recent years the Fed’s communication style has become increasingly direct. So after the Fed’s mid-March meeting we weren’t expecting any dramatic surprises, and indeed we didn’t get any. Highlights of the Fed meeting include: 

• Short-term interest rates remain unchanged, as expected
• The asset purchase program, in which the Fed buys at least $120 billion in bonds per month, continues apace. We had seen speculation that the Fed would start preparing markets for a tapering of the program, but that did not occur
• Sharply higher GDP growth projections for 2021, at 6.5%. The previous estimate was 4.2% in December, but we’ve had strong economic data, along with the passage of another COVID recovery package, in the past 3 months
• The unemployment rate is expected to fall from 6.2% to 4.5% by year’s end; medium and long-term unemployment rate expectations are around 4%
• Core inflation expectations are now up to 2.2% for 2021, 2% in 2022, 2.1% in 2023, and 2% in the long run. Fed Chair Jerome Powell observed that a transitory rise in inflation above 2% appears likely this year, but that such inflation would be tolerable as the Fed pursues its full employment objectives
• Though more members of the Federal Open Market Committee forecast a rate hike within the next 2 years (4 out of 18 in 2022, 7 out of 18 in 2023), rates are still expected to be low, with the most hawkish forecasters foreseeing only a 1% rise in interest rates by 2023. Dovish monetary policy looks likely to remain in place for quite some time

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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation.  Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.