Watch live: Fed's Jerome Powell discusses interest rates
New York (CNN Business)The Federal Reserve left rates near zero and said it would continue to use all the tools in its arsenal to support the still bouncing-back US economy. But it struck a somewhat more hawkish tone in Wednesday’s monetary policy update, saying it is prepared to “adjust the stance of monetary policy as appropriate if risks emerge.”
One of these risks could be a spike in inflation.
Fed officials expect inflation to hit 2.4% this year, above their December estimate of 1.8% and slightly ahead of the central bank’s target of around 2%.
The Fed also noted public health indicators, labor market conditions and financial market developments as potential risks in its statement.
The central bank left interest rates unchanged in the range of zero to 0.25%.
Stocks briefly jumped following the statement.
Investors are worried that the full reopening of the economy will lead to a spike in consumer price inflation, which in turn will force the Fed’s hand in raising interest rates sooner than hoped. Treasury bond yields have been rising against the backdrop of this thesis, climbing to a 13-month high of 1.67% Wednesday.
According to the Fed’s consensus forecast — known as dot plot — the central bank doesn’t expect any rate hikes in 2021, but four Fed officials project higher interest rates in 2022.
But while inflation might be the bogeyman haunting Wall Street these days, higher consumer prices would come on the heels of a strengthening economy. Fed officials projected US gross domestic product, the broadest assessment of economy activity, to climb 6.5% this year, more than the 4.2% projected in December. Meanwhile, the unemployment rate is expected to fall to 4.5% by year-end, compared with the previous forecast of 5%. As of February, the nation’s jobless rate stood at 6.2%.
This is a developing story. It will be updated
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