Even as the U.S. economy gathered steam this year Federal Reserve officials remained cautious about the continuing risks of the pandemic and committed to pouring on monetary policy support until a rebound was more secure, minutes of the central bank’s March meeting reflect.
With their own forecasts projecting the strongest run of economic growth in nearly 40 years, “participants agreed that the economy remained far from the (FedRs) longer-run goals and that the path ahead remained highly uncertain,” the Fed’s minutes stated on Wednesday.
“Participants noted that it would likely be some time,” before conditions improved enough for the Fed to consider pulling support.
What that may mean in practice however remains unclear, and divisions among Fed officials over how much longer to keep massive central bank support in place were on display Wednesday.
Chicago Fed President Charles Evans, who agrees with the majority of his colleagues that interest rates will likely need to say near zero through 2023, said he envisions an uncomfortable period of higher inflation this year, but that the Fed shouldn’t budge until it’s sure that prices won’t just fall back again below the Fed’s 2% inflation goal.
“We really have to be patient and be willing to be bolder than most conservative central bankers would choose to be,” he told reporters.
Separately, Dallas Fed President Robert Kaplan reiterated his longstanding worries that low rates and the Fed’s bond purchases could fuel excesses and imbalances in markets.
Once the pandemic has receded, he said, the Fed should pare its bond buying and move toward raising rates in 2022, and signaled he may even be open to doing both at once.
“My thought is the tapering would come first,” Kaplan said in a virtual discussion organized by UBS. “I think in my mind it would be substantially completed before you dealt with Fed funds rate, but I would like to retain flexibility on that.”…Read more>>