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Fed Holds Steady on Interest Rates, Bond Purchases

A look at how monetary policy might impact recovery.
(Maxx-Studio)
(Maxx-Studio)
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“The Federal Reserve kept its easy-money policies in place and vowed to maintain them until the U.S. economy recovers further from the effects of the coronavirus pandemic, while officials also highlighted an improved outlook for growth,” WSJ writes.

Why It Matters: Central bankers unanimously agreed to keep overnight interest rates at zero, which has been the case for roughly a year now, and to continue “purchasing at least $120 billion of Treasury bonds and mortgage-backed securities monthly.” Federal Reserve Chairman Jerome Powell said these measures “will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.”

Looking Ahead: According to new projections, Fed officials see recovery happening quicker than expected. That resulted in notable increases in their forecasts for growth and inflation underpinned by the success of the Covid-19 vaccination efforts and the trillions of stimulus flowing into the economy.

Specifically: We might see the Fed keep these “ultralow” interest rates around through 2023.

  • Officials expect U.S. GDP to grow 6.5% this year, an improvement from their December forecast of 4.2%.

Justin Oh:

This was good news for growth stocks yesterday, as the Fed has signaled that they are not going to raise interest rates until 2023. 

But as we see today, the market sets the 10 year Treasury yield (unless the Fed performs “Operation Twist”), and just because the Fed doesn’t expect a violent inflation overshoot doesn’t mean it can’t happen.

I will be going live today on our YouTube channel to give a full rundown of the FOMC meeting and look at a few stocks.

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