Federal Reserve minutes from March meeting

US Federal Reserve officials said at their last meeting that simple policies will remain in place until they lead to more employment and inflation, rather than just adjusting based on projections.

The Federal Open Market Committee released minutes of the March 16-17 meeting on Wednesday as investors searched for clues as to where future policy could lead.

From the summary of the meeting, it emerged that while officials saw a significant recovery in the economy, they see much more progress ahead of ultra-light policy changes.

Members said the $ 120 billion monthly bond purchases had “greatly boosted the economy.”

“Participants noted that it is likely to take some time to make significant further progress towards meeting the Committee’s goals for maximum employment and price stability and that asset purchases, in line with the committee’s results-oriented guidelines, are at least at the current pace to be continued until then. “

Adherence to the “results-oriented guidelines” is a promise that the Fed will wait for the economy to show “significant further progress” towards the dual goals of full employment and inflation of around 2%.

The guidelines are a policy change for the central bank where it would previously adjust policy in anticipation of inflation. In the minutes, members agreed that policy changes “should be based primarily on observed results rather than forecast”.

Markets reacted little to the news, although some questioned whether the Fed needs to maintain its historically accommodative stance.

While policies to address the uncertainty of the Covid-19 crisis were adopted, continued economic gains and advances in fighting the pandemic through vaccines are “making it difficult to understand how the policies are now properly calibrated,” wrote Bob Miller, head of Americas Fundamental Fixed Income at wealth management giant BlackRock. “The same emergency stance persists despite the lack of emergency conditions.”

During the meeting, the Fed’s political arm voted to keep short-term lending rates near zero and to continue buying bonds worth at least $ 120 billion each month.

The market will be informed in good time before the committee makes any changes, according to the minutes.

“A number of participants stressed the importance of the committee communicating its assessment of progress towards its longer-term goals well in advance of what it can be judged to be substantial enough to change the pace of asset purchases to justify, “the summary said. “The timing of such communications would depend on the development of the economy and the pace of progress in achieving the committee’s objectives.”

The committee also raised its outlook for economic growth and impending inflation. The median outlook for GDP in 2021 was 6.5%, a significant improvement over the 4.2% expectations in the December forecasts.

Officials also said the unemployment rate could fall to 4.5% by the end of the year and inflation could rise to 2.2%, slightly above the Fed’s traditional 2% target.

Although inflation shows up 64 times in the minute, Fed officials expressed little concern that it could soon become a problem. A term in the minutes said that inflation projections were exactly where FOMC members expected.

During a media meeting hours before the minutes were released, Charles Evans, President of the Chicago Federal Reserve, said it would be “months and months” of higher inflation before I even had an opinion on whether or not this was sustainable Not . “

On the way to the FOMC meeting in March, some market experts had expected that the Fed could at least change the maturity of the bonds it had bought in order to contain a sharp rise in longer-term government bond yields this year.

However, Chairman Jerome Powell and other central bank leaders have stated that they view the rise in interest rates as an expression of stronger growth expectations rather than uncomfortable inflationary pressures.

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