Minutes Show Fed Maintains Policy with Possible Changes Sooner than Expected

The United States Federal Reserve Board remains committed to supporting the economy until it completes the recovery but it is still concerned about the risks resulting from the coronavirus pandemic, according to the minutes of its most recent meeting.

Members of the Federal Open Market Committee (FOMC) agreed that the U.S. economy remained far from the Fed’s goals in their latest meeting, which took place on March 16-17.

They believe the path to recovery and achieving inflation and employment goals remained highly uncertain, the minutes showed.

This is despite their expectations for a very robust economic performance, forecasting the highest growth rate in the U.S. in around four decades, as they see it would likely take some time before more strong signals are shown by the economy.

“Market participants highlighted an improving economic outlook, bolstered by passage of the [$1.9 trillion] American Rescue Plan (ARP) and progress on vaccinations, as underlying the increase in yields.”

Although it remains far from now, but the Fed could start raising interest sooner that previously expected.

“Since the January meeting, the date of the first increase in the target range for the federal funds rate implied by a straight read of market pricing moved notably earlier to the first quarter of 2023, and the implied target rate at the end of 2023 rose around 50 basis points.”

The minutes further revealed that “responses to the Open Market Desk surveys suggested more modest changes to policy rate expectations. The probability-weighted mean survey expectation for the target rate at the end of 2023 rose only around 5 basis points.”

Accordingly, some FOMC members believe an interest hike should take place sooner that expected, with some seeing it should take place as early as next year.

Although the minutes showed a possible analysis for the rise in Treasury bond yields, it did not point to signs that this could push the Fed to raise interest rates. Nonetheless, a few members believe the current policy of interest rates near 0% and $120 billion in monthly asset purchases pose financial stability risks, but the Fed will almost surely maintain these policies until the economy recovers from the negative impacts of the pandemic.