MNI POLICY: Fed Signals Growing Optimism, Keeps Policy on Hold

The Federal Reserve signaled more optimism about the economic rebound amid progress on vaccinations and fiscal stimulus, while leaving its highly-supportive QE and interest rate policies on hold.

"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the Fed said Wednesday in its post meeting policy statement, an upgrade from its March assessment. "The sectors most adversely affected by the pandemic remain weak but have shown improvement," the FOMC added.

The Fed also shifted to say that inflation has risen on "transitory factors," and dropped the word "considerable" when describing risks to the outlook from the pandemic.

The Fed reiterated its committed to keep buying USD120 billion in bonds per month until the economy makes "substantial further progress" toward the central bank's goals of price stability and full employment.

MNI reported last week ex-Fed officials are starting to more concretely sketch out what such a metric might look like now that the economy is gradually edging closer to the Fed's stated goals. Fed Chair Jerome Powell and others have been reluctant to do so in order to spook markets about the prospect of tapering being around the corner.

As for when it might raise interest rates, the central bank has vowed to remain patient, even more so than in the past as it waits for evidence that the economy is already at full employment and that inflation has modestly overshot the 2% goal in order to make up for past misses and anchor inflation expectations at 2%.

That's a message Fed Chair Powell is likely to repeat in his post-meeting press conference, in which he will face pressure to justify maintaining the Fed's ultra-easy monetary policies amid signs of very strong growth this year and next.

The median forecast in the March Summary of Economic Projections was for interest rates to remain on hold until at least 2023. The Fed will release its next set of official forecasts in June.