The Federal Open Market Committee (FOMC) met yesterday, March 17, and the central bankers appeared more optimistic about the U.S. economic outlook. They are increasing their median growth estimate two points, raising it to 6.5% for 2021. The increased growth projections emanate from the $1.9 trillion COVID-19 relief package signed into law by President Biden on March 11.
Stimulus checks of $1,400 are already going out to Americans, and other stimulus payments are expected to support ailing businesses and their employees.
One of the concerns facing the FOMC was that the stimulus package would flood the market with additional cash, possibly causing inflation to rise to 2.4%. Financial markets expressed concern that the size of the stimulus program would lead to inflation, causing the Fed to increase rates to avoid an inflationary spiral. Notwithstanding that concern, such as it is, the FOMC indicated that it did not expect to raise its benchmark interest rate through at least 2023 and indicated that the central bank is “prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
At his press conference, which wrapped up at 3:30 yesterday afternoon, Powell stated that the Fed must see “substantial further progress from the U.S. economy towards its 2% long-term inflation and maximum employment goals before it begins considering tapering its multi-billion-dollar bond purchases. Powell stated that “until we give a signal, you can assume that we’re not there yet. As we approach it, well in advance, well in advance, we will give a signal that yes, we’re on a path to possibly achieve that, to consider tapering.”