Fed opens policy meeting amid growing signs of rebound

Washington (AFP) –


US central bankers opened their two-day policy meeting on Tuesday, having committed to keeping stimulus in place until the economy fully recovers from the ravages of the Covid-19 pandemic.

The Federal Reserve slashed the benchmark lending rate to zero in the early days of the crisis in March 2020, and then started pumping cash into the economy -- which, combined with massive federal rescue spending, was credited with preventing a worse downturn.

But even with growing signs that the reopening economy is boosting employment and prices, Fed chief Jerome Powell has remained adamant that the policy-setting Federal Open Market Committee (FOMC) will not raise rates or pull back its liquidity measures for some time.

Consumer confidence soared to its highest level since before the pandemic, with the Conference Board saying on Tuesday its index hit 121.7 in April.

Consumers are more confident about their income prospects, however, and the survey shows inflation expectations for the coming year remain elevated.

The FOMC decision Wednesday will come a day before the government releases its first reading on GDP in the January-March quarter, which economists project will show 6.5 percent growth.

And government inflation data showed consumer prices increased 2.6 percent in March compared to the year earlier -- which has led some economists to worry the Fed is too complacent about price pressures.

But Powell in his press conference Wednesday likely will reiterate his stance that price spikes in the short term will not last, since they are caused by the reopening economy as well as temporary supply chain issues caused by the pandemic.

Kathy Bostjancic of Oxford Economics said the Fed is showing "a willingness to run the economy hot to achieve broad-based, inclusive full-employment and policymakers do not believe the rise in inflation will be 'large or persistent.'"

"Despite Powell's assertion that the economy has reached an inflection point, whereby activity, employment growth and inflation are accelerating, the labor market remains far from its pre-pandemic status," she said in an analysis.

Even with signs hiring has picked up, more than 17 million people remain out of work, and Powell has said the economy will not reach full employment this year.