The Federal Reserve kept its benchmark federal funds rate at near-zero levels on April 28 and gave no indication that it planned to taper its $120 billion in monthly bond purchases as the U.S. economy begins to rebound from the global COVID-19 pandemic.
"It is not time yet," Fed Chairman Jerome Powell said at a press conference following the rate-setting Federal Open Market Committee's two-day meeting.
The decision to stand firm on its near-zero rates and bond purchases was not a surprise as the majority of Fed officials have indicated a desire to keep their benchmark short-term interest rate at effectively zero through 2023. In its most recent quarterly forecasts, however, seven of the 18 FOMC members saw at least one rate hike by 2023, and four saw the Fed tightening as early as next year.
In a statement following the meeting, the Fed said it expects to keep rates near zero "until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time."
The Fed also said it will not back off its monthly purchases of $80 billion worth of Treasury securities and $40 billion worth of mortgage-backed securities nor its overall accommodative policy stance until its price and employment goals are met.
"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the Fed said. "The sectors most adversely affected by the pandemic remain weak but have shown improvement."
In a press conference following the meeting, Fed Chairman Jerome Powell said it was "not time yet" to even begin discussing tapering bond purchases, as the Fed's employment and inflation goals are nowhere near being met.
"We're a long way from our goals," Powell said. "It's going to take some time."
Powell, who mentioned that increasing vaccination rates were bolstering the economic recovery and contributing to "frothy" equity markets, suggested that the Fed's accommodative monetary policy stance would remain in place until the pandemic was "decisively behind us." He gave no benchmarks on this expected progress, repeating instead the Fed's desire to see "substantial further progress" on its employment and inflation goals.
In its statement, the Fed said inflation has risen but attributed it to "transitory factors." It backed its push for inflation to run above 2% "for some time" and reach maximum employment.
"The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved," it said.
Fed policy has come under increasing scrutiny as analysts warn that rising inflation could undermine the post-pandemic recovery.
"Inflationary pressures are building up," Fawad Razaqzada, a market analyst with ThinkMarkets, said in an April 28 note, noting that the prices of multiple commodities, including copper, iron ore and lumber have all seen steep, recent rises. "With margins tight, producers will likely pass on these raised input costs onto consumers."
Powell labeled these pressures as temporary, caused by base effects and bottlenecks in the supply chain.
"It's a question of when they will pass through, not whether they will pass through," Powell said.
In an April 27 note, economists with Goldman Sachs said they expect the Fed's preferred metric of inflation, the core personal consumption expenditure price index, or core PCE, to climb to 2.05% by the end of 2021.
Hans Mikkelsen, a credit strategist with Bank of America Securities, said it remains unclear how much inflation may impact the post-pandemic recovery and markets.
"It might be that in two years we can look back and see inflation was temporary, the Fed unusually was able to communicate monetary policy tightening in a perfect way, and all was fine," Mikkelsen wrote in an April 27 note. "But it seems likely there will at least be periods in coming months where it's going to feel very different and much more disorderly than that."