Federal Reserve minutes of the March meeting

Federal Reserve officials indicated at their last meeting that the pace of asset purchases is unlikely to change any time soon as the central bank pursues its economic goals.

The Federal Open Market Committee released minutes of its March 16-17 meeting on Wednesday, in which investors looked for clues as to where the policy might go in the future.

The summary of the meeting indicated that while officials have seen the economy grow significantly, they see that much more progress is needed before extremely simple policy changes are possible.

Members said the $ 120 billion a month in bond purchases “supported the economy substantially.”

The participants noted that it would likely be some time before substantial further progress towards the commission’s maximum employment and price stability objectives were achieved and that, in accordance with the commission’s results-oriented guidelines, the purchase of assets in any case would continue at the current rate. until then.”

Adherence to “results-oriented guidelines” is a pledge that the Fed will wait for the economy to show “substantial further progress” toward the dual targets of full employment and inflation, which is around 2%.

The expectation is a policy change for the Fed, in which it previously would adjust policy in anticipation of inflation. According to the minutes, members agreed that policy changes should “be based primarily on observed results rather than predictions”.

At the meeting, the Fed’s policy-making arm voted to keep short-term borrowing rates close to zero and to continue buying at least $ 120 billion in bonds each month.

The market will receive ample notice before the committee makes any changes, the minutes said.

A number of participants stressed the importance of the committee clearly communicating its assessment of progress towards its longer-term goals well in advance of when it could be considered substantial enough to warrant a change in the pace of purchases. of assets, “the summary said. “The timing of such communications would depend on the evolution of the economy and the pace of progress towards the Committee’s goals.”

In addition, the committee has presented its prospects for economic growth and inflation. The median outlook for GDP in 2021 went to 6.5%, a big improvement from the 4.2% expectation in the December projections.

Officials also indicated that the unemployment rate could fall to 4.5% by the end of the year and inflation could rise to 2.2%, slightly above the Fed’s traditional 2% target.

Although inflation shows up 64 times in the minutes, Fed officials said they had little concern that it could become a problem in the short term. An idea in the minutes said the inflation projections were exactly what the FOMC members expected.

Speaking with the media a few hours before the minutes were released, Charles Evans, president of the Chicago Fed, said it would take “ months and months ” of higher inflation before I even have an opinion on whether this sustainable or not. . “

On the way to the FOMC meeting in March, some market experts had expected the Fed to at least change the duration of the bonds it bought to dampen a sharp rise in long-term government bond yields this year.

However, Chairman Jerome Powell and other central bank leaders have said they see the rate hike as a reflection of stronger growth expectations rather than uncomfortable inflationary pressures.

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