U.S. Federal Reserve Chairman Jerome Powell sought to reassure investors who are worried about inflation pressures as the economy reopens, saying that the central bank plans to maintain near-zero interest rates through the end of 2023.
Seven of 18 officials at the Federal Reserve predicted higher rates by the end of 2023 compared with five of 17 at the December gathering, showing a slightly larger group who see an earlier start to rising interest rates.
"The strong bulk of the committee is not showing a rate increase during this forecast period,” Powell told a virtual press conference following a meeting of the Federal Open Market Committee. “Sectors most adversely affected by the pandemic remain weak…Inflation continues to run below two per cent."
The Federal Reserve also said that it expects any bump in inflation this year will be short-lived. Officials saw their preferred measure of price pressures slowing to two per cent next year following a spike to 2.4% in 2021, according to the projections. Excluding food and energy, inflation is forecast to hit 2.2% this year and fall to 2% in 2022.
Ten-year Treasury yields reversed their earlier rise as Powell spoke and U.S. stocks closed higher Wednesday.
Asked about the recent move up in yields, Powell pushed back against the idea the Federal Reserve should lean against the market, noting that the current stance of the central bank’s policy, including its asset purchase program, was appropriate.
Massive fiscal support and widening vaccinations that will help reopen the economy have buoyed investor expectations for interest rate increases and inflation, propelling Treasury yields higher as the U.S. central bank and federal government keep adding stimulus.
The Federal Reserve announced that it is keeping the target range for its benchmark federal funds rate at zero to 0.25%, the same level it’s been at since March 2020.
