Federal Reserve signals hope for economic recovery

COVID-19 and the subsequent economic lockdowns have had a devastating effect on the national and global economies. The U.S. economy is still struggling to get back to pre-pandemic levels. Despite ongoing uncertainty, the Federal Reserve has recently suggested that a strong recovery is within sight.

According to the released minutes from the most recent meeting of the Federal Reserve, several Fed officials expressed tentative optimism about the current state of the U.S. economy. With a $1.9 trillion stimulus bill signed into law, there is hope that this infusion of money into the economy will promote consumer spending and prop up the still languishing job market.

On the other hand, the successful and widespread rollout of the COVID-19 vaccine has helped restore some normalcy and stability to the economy. March saw significant gains in hiring and a drop in unemployment. As the vaccine becomes even more widely distributed, jobs will only improve as travel, restaurants, and other similar venues open up.

The Fed is still largely committed to keeping interests rates at ultra low levels all the way to 2023, however, in order to ensure a smooth and steady return to normalcy. They are committed to not raising interest rates until inflation reaches 2% and the job market improves to an as of now unspecified margin.

Inflation currently stands at 1.5%. The job market in March 2021 was still down by 8.4 million jobs compared to February 2020, despite the recovery.

Four Fed officials were more optimistic, albeit with many reservations, about raising interest rates by 2022. Dallas Fed President Robert Kaplan expressed support for this timeline, provided the economy shows significant signs of recovery. There are also some concerns that if the interest rates stay at ultra low levels for an extended period of time, it will encourage reckless financial decisions.

The Fed was emphatic that any changes in policy will be clearly signaled far in advance. This is in hopes to avoid repeating the so-called taper tantrum of 2013, when the Fed shocked the markets by suddenly reversing their policy on quantitative easing.

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