WASHINGTON—The Federal Reserve announced on June 16 that it would keep U.S. interest rates near zero as “risks to the economic outlook remain.”
The U.S. central bank made a significant revision to its short-term inflation forecast, reflecting large spikes in consumer and producer prices caused by supply-chain bottlenecks and strong household demand.
“Progress on vaccinations has reduced the spread of COVID-19 in the United States. Amid this progress and strong policy support, indicators of economic activity and employment have strengthened,” Fed officials said in a revised statement.
“The path of the economy will depend significantly on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”
Following a two-day meeting of the Federal Open Market Committee (FOMC), the central bank announced it would hold the federal funds rate at a range of zero to 0.25 percent, in line with expectations. Fed officials could begin to raise interest rates in 2023, earlier than previously forecasted, according to the new projections.
However, a growing minority of committee participants sees a rate increase much sooner than 2023. Seven of 18 participants now predict at least one quarter-point rate hike as soon as 2022.
The committee also made upgrades to its economic forecasts. Gross domestic product is now expected to grow by 7 percent (median) in 2021, compared to the 6.5 percent increase projected in March.
In its announcement, the Fed removed language that stated: “The ongoing public health crisis continues to weigh on the economy.”
“Even so, the recovery is incomplete and risks to the economic outlook remain,” Fed Chairman Jerome Powell said at a post-meeting press conference.
According to the Fed, sectors hit hard by the pandemic remain weak. Fed officials “expect to maintain an accommodative stance of monetary policy,” he said.
BY EMEL AKAN
