© Reuters. FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington
By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – Federal Reserve officials remain wary about the ongoing risks of this coronavirus pandemic and are committed to strengthening the economy until its recovery is more secure, minutes of their U.S. central bank’s most up-to-date policy meeting showed on Wednesday.
With their particular forecasts projecting the strongest run of U.S. economic growth in nearly 40 years,”participants agreed that the economy remained far from the (Fed’s) longer-run goals and that the path ahead remained highly uncertain,” the minutes from the March 16-17 meeting said.
“Participants noted that it would likely be some time,” before conditions improved enough to the central bank to consider reducing its current level of support.
Though many policymakers in the meeting indicated they believed interest rates may need to rise sooner than anticipated by the majority of their coworkers, and perhaps as soon as next year, there was little sense of urgency around that dilemma in the minutes.
Labor markets were advancing, but remained gashed from the pandemic. Inflation would pick up, the moments mentioned, but probably subside next calendar year. A recent leap in U.S. Treasury yields was”generally viewed… as reflecting the improved economic outlook.”
Only a couple of the officials cited possible financial stability risks flowing from the Fed’s current policy of maintaining its overnight benchmark lending rate around zero and buying 120 billion in bonds every month — a setting the Fed says is locked until the economy is well on its way to being healed.
That procedure is underway, together with the economy buoyed by the Fed’s support, gigantic fiscal spending pushed by the White House and passed by Congress, and an accelerating COVID-19 vaccination program.
But with a”brighter outlook,” Fed Governor Lael Brainard said on CNBC that the consequences to the economy stay deep, and the Fed’s new approach is to not act until its inflation and employment goals are procured.
Policymakers expect”considerably better outcomes on growth, and employment and inflation” in forthcoming months, Brainard said. “But that is an outlook. We are going to have to actually see that in the data,” and with millions of jobs still missing due to the pandemic”we have some distance to go.”
But progress may also come fast as the economy reopens and the effect of the vaccines is sensed. Even the U.S. economy added nearly a million jobs in March, and that rate may well continue as more activities are thought to be safe to restart.
Bob Miller, BlackRock (NYSE:-RRB-‘s head of fixed income for the Americas, said he believed the Fed could not for a lot longer paper within the gap between the market’s continued advancement and its own insistence on maintaining coverages intended for a crisis.
“It’s difficult to understand how policy is properly calibrated now. The same emergency stance remains despite the absence of emergency conditions,” Miller wrote. “The unwillingness to acknowledge the degree of improvement looks increasingly challenged,” a stance which may want to change perhaps by the Fed’s June policy meeting.
‘WILLING TO BE BOLDER’
Prices on a variety of securities influenced by the Fed’s target interest rate show investors expect the central bank to raise rates earlier than its projections indicate.
Chicago Fed President Charles Evans, that agrees with the majority of his colleagues that the Fed’s benchmark overnight interest rate will probably need to remain near zero during 2023, said he envisions an embarrassing period of higher inflation this season. But he insisted that the Fed shouldn’t budge until it is certain that prices will not just fall back again below its 2% inflation objective.
“We really have to be patient and be willing to be bolder than most conservative central bankers would choose to be,” he told reporters after an event organized at the University of Nevada, Reno.
Speaking separately in a virtual session organized by UBS, Dallas Fed President Robert Kaplan reiterated his longstanding concerns that low rates of interest and the Fed’s bond buys could fuel excesses in markets.
Once the pandemic has receded, Kaplan said, the Fed must curtail its bond-buying and proceed raising prices in 2022, and he signaled he might even be amenable to doing both at the same time.