Wednesday 17th March 2021 - 16:37 (GMT)
The Federal Reserve took a more hawkish stance on the US economy following its latest 2-day meeting in Washington D.C. The central bank raised its 2021 US GDP growth forecast to 6.5% - a sharp increase from Decembers 4.2% estimate.
The news comes against a backdrop of recent improvements in US macro momentum, the new administration’s substantial fiscal stimulus and vaccine-boosted reopening trends within the worlds largest economy.
There was further positive news for markets as a majority of Fed officials did not expect a rise in interest rates until 2024, despite the improved economic outlook.
This was reiterated as Fed Chair Jerome Powell commented that there would be no move in interest rates until the 10 million+ unemployed headcount was significantly reduced, whilst also accepting inflation will push higher over the rest of the year.
Core inflation is now expected to rise to 2.2% - above the central banks 2% target level and driven by rising consumer prices. This acceptance sparked a huge rally across global stock markets as risk appetite grew.
The FOMC also committed to buy bonds at a rate of $120bn per month until “substantial further progress” was made towards its goals and went on to add that it expects 2021 to be the best year for the US economy since the 1980’s.
The US dollar immediately began to soften following the meetings conclusion and looks set to test $1.40 vs. the pound and 1.20 against the euro. Analysts have yet to see any real stabilisation above these key levels of resistance as markets continue to grapple with uncertainty surrounding Covid 19 vaccination progress.
