- Fed Holds Steady on Rates
- Powell: Fed will Support the Economy as long as Needed
- Oil in the Longest Downtrend in Over a Year
Fed Holds Steady on Rates
Following the March meeting of the Federal Open Market Committee (FOMC), the US Federal Reserve (Fed) unanimously left the federal funding rate unchanged in the range of 0-0.25 %, in line with expectations. The Fed also kept the interest on excess reserves at 0.10 %.
In the statement, which also pointed out that the bank will continue to purchase assets, at least $80 billion per month for treasury bonds and at least $40 billion per month for mortgage-backed securities purchases, until “significant progress” is achieved in the maximum employment and price stability targets.
In addition, it was pointed out that although the sectors most adversely affected by the epidemic continued to remain weak after the slowdown in recovery, economic activity and employment indicators have turned upward in the recent period.
It was noted that the course of the economy will continue to depend significantly on the course of the virus, including the progress of vaccines, and that the public health crisis continues to put pressure on economic activity, employment, and inflation, and poses significant risks to the economic outlook.
In the statement, it was stated that the monthly asset purchase program of at least 120 billion dollars will continue, and it was emphasized that the financial conditions continue to support the economy in general.
Even so, most Fed officials still expect to maintain ultralow interest rates through 2023. Just seven of 18 policy makers at Wednesday’s meeting anticipate lifting rates in 2022 or 2023, up from five in December.
Fed officials expect the economy to recover more quickly than they did a few months ago, according to new projections released Wednesday. They sharply raised their forecasts for economic growth and inflation, anticipating that the Covid-19 vaccination campaign and trillions of dollars of fiscal stimulus will propel the U.S. economy to its fastest expansion since the early 1980s.
The growth forecast of the US economy for this year has been increased from 4.2 % to 6.5 %. While the growth forecast of the country’s economy for 2022 was increased from 3.2 % to 3.3 %, the 2023 forecast was decreased from 2.4 % to 2.2 %. Also, the long-term growth expectation for the US economy was 1.8 %.
The inflation forecast for this year has also been raised from 1.8 % to 2.4 %. Inflation forecasts were increased from 1.9 % to 2 % for 2022 and from 2 % to 2.1 % for 2023.
In the statement, which also includes estimates on the unemployment rate, it was estimated that the unemployment rate in the country, which was predicted to be 5 % this year, will be 4.5 %. Estimates of the unemployment rate in the country were reduced from 4.2 % to 3.9 % for 2022 and from 3.7 % to 3.5 % for 2023.
Powell: Fed will Support the Economy as long as Needed
The Federal Reserve kept its easy-money policies in place and vowed to maintain them until the U.S. economy recovers further from the effects of the coronavirus pandemic, while officials also highlighted an improved outlook for growth.
After a painful 2020 in which the Fed pledged to do whatever it took to prevent lasting virus-inflicted economic damage, the decision underscored that the policy response has moved into a new stage: As long as it takes.
“We will continue to provide the economy the support that it needs for as long as it takes,” Fed Chairman Jerome Powell said at a press conference Wednesday after the conclusion of a two-day policy meeting. Stating that some of the worst economic consequences were prevented, Powell said, “Economic indicators have recently risen, but the path the economy will follow depends largely on the course of the virus.”
“The economic recovery continues to fluctuate and the recovery is far from complete. We will let inflation rise above 2 % for a while. The temporary rise in inflation does not require a rise in interest rates. The vaccination is promising to return to more normal times,” Powell said.
Saying that the economy is far from inflation and employment targets, Powell said, “For this reason, the monetary policy stance will remain supportive. We will communicate long before the possible reduction decision in the purchase of bonds, but now we are not at the right time to talk about reducing the bond purchases.”
“The vast majority of Fed members do not anticipate a rate hike. I am not commenting that a rate hike is far away at the moment. Our verbal guidance on the rate hike is very clear. We expect faster progress in spending throughout the year. One-off price increases will have a temporary general effect,” Powell said.
Powell said: “Financial support will accelerate the return to full employment. We will decide on the defaults in a few weeks. The pandemic is not over yet. There is a lot of uncertainty ahead. We are in an extremely uncertain economic situation. The Fed’s steps depend on the data and now we have an uncertain path ahead. The point chart does not contain a commitment to the Fed’s policy, ” he said.
“It’s just a lot of people who need to get back to work, and it’s not going to happen overnight, — it’s going to take some time,” Mr. Powell said. “The faster, the better. We’d love to see it come sooner rather than later.”
Mr. Powell indicated on Wednesday that the Fed was not ready to even start talking about when it might reduce that support. When it is, he said, it will signal so “well in advance of any decision to actually taper.”
Oil in the Longest Downtrend in Over a Year
The increase in oil stocks in the USA and the International Energy Agency’s statement that there is excess stocks paused the rise in oil prices in 2021.
Oil prices fell this week, despite OPEC’s surprise decision to extend the production cuts earlier this month. OPEC is expected to address the oil cutback on April 1, its next meeting.
The International Energy Agency said Wednesday that it does not expect oil to enter a “supercycle,” or extended period during which prices rise well above their long-run trend.
“Oil’s sharp rally to near $70 per barrel has spurred talk of a new supercycle and a looming supply shortfall. Our data and analysis suggest otherwise,” the IEA said in its latest monthly report.
Some analysts are expecting crude prices to surge near $100 per barrel as coronavirus lockdowns end and travel resumes. But the IEA, which monitors energy market trends for the world’s richest countries, thinks there is too much oil sloshing around global markets for a supercycle to take hold.
West Texas-type crude oil retreated on Day 5, thus registering the longest run down streak in more than a year. Brent crude oil retreated in London as traders expected global supply risk and recovery in consumption to be difficult after the pandemic.
The International Energy Agency reported in a report that oil demand will not return to pre-pandemic levels until 2023. U.S. crude oil stocks increased by 2.4 million barrels, the highest level since December.
Oversea-Chinese Banking Corp. Economist Howie Lee stated that oil could fluctuate in a narrow band for a while and said, “Although the increase in US stocks distorts the short-term perception, we are in a bullish stance in energy due to the global inoculation speed and economic recovery.”
The barrel price of West Texas type crude oil for April futures fell 0.6 % to $64.22. Prices fell 2.2 % this week, heading to the biggest weekly loss since October.
The barrel price of Brent oil for May settlement, on the other hand, fell 0.7 % to $67.54, the lowest closing since March 9.