The U.S. Federal Reserve is expected to maintain its current economic stimulus measures and keep interest rates at historic lows when it concludes its latest meeting on Wednesday (April 28).
Central bank officials are not expected to take any action at their two-day meeting but could acknowledge signs of positive momentum in the economy in a statement that will be released to the public.
The central bank has now kept its benchmark overnight lending rate at zero for 14 consecutive months, since the COVID-19 pandemic took hold. The Fed also instituted a series of programs to keep markets liquid and credit flowing as the pandemic shut down the economy.
The U.S. economy is bouncing back, bolstered by fiscal and economic policy, as well as the growing numbers of people vaccinated against COVID-19. First-quarter gross domestic product (GDP), which will be reported on April 29, is expected to show the economy grew by 6.5%. Second-quarter growth is forecast to be closer to 10%.
The U.S. Federal Reserve has taken unprecedented measures to stave off an economic crash and succeeded in keeping financial markets liquid. As a result, its balance sheet has ballooned to $7.9 trillion U.S.
The process of moving away from these policies is expected to be slow and deliberate. Bond strategists have been focused on when the Fed would start to unwind the $120 billion U.S. a month minimum in asset purchases. U.S. Federal Reserve Chairman Jerome Powell has said the central bank will slow the purchases when it sees "substantial further progress" in the economy.
As for inflation, prices are rising across the U.S. economy and inflation data is expected to show gains that are greater than the Fed’s 2% target. Due to base effects, inflation should look strong in the next couple of months when compared with the past year. Powell has cautioned that this will be temporary before inflation slows down later in the year.
But Powell has also said the central bank will tolerate higher inflation and it will look at an average, hoping for a period of consistent 2% or better before starting to raise interest rates.
