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March 17, 2021US MONETARY POLICY At its scheduled Federal Open Market Committee (FOMC) meeting, the Federal Reserve announced that it would keep the target range for the federal funds rate at 0 to 0.25 per cent. The Committee expects to maintain this target rate until labour market conditions are at levels that is consistent with the Committee’s assessment of maximum employment and inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for a period so that inflation averages 2 per cent over time.
Additionally, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month. The Federal Reserve expects to continue this until substantial progress has been made towards the goals of maximum employment and price stability. This is expected to provide support to the flow of credit to households and businesses and ensure smooth functioning of the financial markets.
The COVID-19 pandemic had an unprecedented impact both on the US and global economy in 2020. The pace of economic recovery has moderated at the end of 2020 reflecting the increases in the number of infections and the associated containment measures. While recent economic indicators point to an increase in economic activity, sectors that rely on personal interactions remain weak and are expected to see a slower return to normal levels of economic activity.
Recent progress on vaccine manufacturing and roll-out will have a significant impact on the path of the recovery. However, the ongoing public health crisis continues to weigh on economic activity, employment, and inflation in the US.
The Federal Reserve projects real GDP will expand 6.5% in 2021 followed by a more moderate growth of 3.3% in 2022 and 2.2% in 2023. Longer-run annual growth rate is projected to be around 1.8%. Federal Reserve’s March projections for real GDP represents an upgrade from their December projections for 2021.
Projections for the unemployment rate are 4.5% in 2021, 3.9% in 2022 and 3.7% in 2023. Inflation rate projections are 2.4% in 2021, 2.0% in 2022 and 2.1% in 2023. The median Federal Funds rate projection is 0.1% through 2023. The longer-run Federal funds rate is estimated at 2.5%.
The Committee noted that it will continue to monitor the economic situation and is prepares to adjust the monetary policy as needed to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The next scheduled FOCM meeting will be held on April 27/28, 2021.
Source: US Federal Reserve, FOMC Statement, Summary of Economic Projections (March 17, 2021)
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