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Stable rates. Securities purchases were confirmed at 120 billion per month, of which 80 for T-Bonds. Financial conditions are still considered accommodative, despite the sharp increase in yields. The statement issued at the end of the March meeting of the Federal Reserve’s monetary policy committee does not reveal, as widely expected, a turnaround.
The diagnosis of the economy inevitably changes, but after noting the slowdown in activity, the Fed already sees signs of recovery, although the sectors most affected by the epidemic remain “weak.”
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Rather, the novelty comes from the economic projections, which point to a strong upward revision of the GDP for 2021: 6.5% compared to 4.2% in December, while the forecasts for the following years are confirmed (3.3 % from 3.2% in 2022, 2.2% from 2.4% by 2023). Consequently, the unemployment rate for this year (4.5% from 5%) and inflation (2.4% from 1.8%) have also been revised downwards, which however should return to the 2% target in later years. The return to activity, “explained President Jerome Powell at a press conference,” will create new pressures on prices, especially if problems arise on the supply side, but “these one-time price increases will probably only have temporary effects on inflation. “.
Even the “dots”, which indicate the intentions of individual central bankers about the future trend of rates, do not suggest a change in direction. Median values have not changed and continue to point to stable rates for the whole of 2021, 2022 and 2023, even if for the last year the average, which is the most affected by extreme values, registers a minimal increase. The equilibrium value of the rates, the long-term forecast, also held steady at 2.5%.
“The monetary policy stance – added Powell – remains very accommodative while the recovery will gather momentum.” This is not the time, therefore, to speak of a fine-tuning, a gradual reduction in purchases of securities: “Not yet.” The Fed would also announce a similar policy change ahead of time, the president explained.
