The Federal Reserve kept rates unchanged at its latest policy meeting,but a shift in sentiment emerged as to how soon it should begin raising rates.
Why it matters: The Fed's rock bottom rates policy and monthly asset purchases helped the U.S. markets avoid a meltdown during the COVID crisis last year. But as the economy recovers, a chorus is growing for the Fed to at least consider a timeline for pulling back its support before things get overheated.
What he's saying: "You can think of this meeting as the 'talking about talking about' [tapering] meeting if you like," Fed chair Jerome Powell said at a press conference Wednesday afternoon, while reiterating the Fed will continue its current monthly purchases for now.
Context: The Fed has stressed over recent meetings that it's looking for "substantial further progress" in the economy — without defining what that is —before it will begin tapering its monthly asset purchases.
What happened: During the press conference, Powell acknowledged that inflation has been higher than expected, but noted that it's largely in pandemic-impacted industries and because of supply chain issues likely to be temporary.
- The Fed moved its PCE inflation forecast for the year by a percentage point, to 3.4%. But it expects inflation to come back down to 2.1% in 2022 and 2.2% in 2023 — somewhat in line with its long-term target of 2%.
- "We do tend to look at the longer term inflation expectations, because that's really what matters for for inflation. The shorter-term ones tend to move around," Powell said.
The big picture: "The view has shifted on the timing of rate hikes with a majority of members expecting anywhere from one to six rate hikes by the end of 2023," Bankrate chief financial analyst Greg McBride wrote in a note Wednesday afternoon. "Projections of rate hikes starting in 2022 also increased by 3 members since the March meeting.”
State of play: Stock indexes were slightly down ahead of the release of the Fed's statement Wednesday morning, and edged down further afterward. The S&P 500 is down about 0.54% on the day.
- The 10-year Treasury yield gained to 1.57% Wednesday, from the open of 1.49%.
The bottom line: Many in the market wanted to see the Fed react to the recent inflation figures, and to at least talk about talking about tapering. That’s happened.