The Fed Keeps The Target Range Of The Federal Funds Rate Unchanged And Substantially Raises Inflation Expectations

The Federal Reserve Board announced on the 16th that it will maintain the target range of the federal funds rate between zero and 0.25%, which is in line with market expectations. The Fed also sharply raised its forecast for this year's US inflation rate growth to 3.4%.

The Federal Reserve issued a statement after the end of the two-day monetary policy meeting that day, saying that with the progress of the new crown vaccination and strong policy support, US economic activity and employment indicators have strengthened. The sectors of the economy most adversely affected by the epidemic are still weak, but have improved. The Fed believes that the rise in inflation mainly reflects temporary factors, and the overall financial situation remains accommodative.

The Fed reiterated that the economic outlook will largely depend on the development of the epidemic. Advances in vaccination may continue to reduce the impact of the public health crisis on the economy, but risks to the economic outlook remain.

The Federal Reserve said it will continue to increase its holdings of U.S. Treasury bonds at a rate of at least US$80 billion per month, and purchase institutional mortgage-backed securities at a rate of no less than US$40 billion per month, until the two goals of full employment and price stability are substantive. progress.

On the same day, the Fed also released the latest economic outlook forecast. It is expected that the US economy will grow by 7% in 2021, which is 0.5% higher than the forecast in March this year; the US economy is expected to grow by 3.3% in 2022.

The Fed also predicts that the unemployment rate in the United States will drop to 4.5% this year; the unemployment rate will drop to 3.8% in 2022. In terms of prices, the U.S. inflation rate is expected to rise to 3.4% this year, and the core inflation rate after excluding food and energy prices is 3%, which is 1% and 0.8% higher than previous expectations, and is well above the 2% inflation target.

The 18 members of the Federal Open Market Committee of the Federal Reserve agreed that the target range of the federal funds rate in 2021 will be maintained at an ultra-low level of zero to 0.25%. Eleven officials predict that this interest rate range will remain unchanged until 2022.