Investing.com – The Federal Reserve kept the US interest rate steady near zero, in the 0.00% – 0.25% range. The Fed expects to raise interest rates in 2023 instead of 2024.
Before the announcement, it stood at the pivot point, and the Dow Jones was down 149 points. Treasury yields fell -0.50%. while settled. The Fed announced a strong rise in inflation, but no talk of tightening.
Returns rose strongly after the announcement, which caused a strong decline in gold prices, a rise in the dollar index, and a decline.
The Fed raised its core inflation forecast by 1%, to 3.4%, from its March forecast. The Fed insisted that inflation was “phased”.
Fed officials raised the GDP forecast from 6.5% to 7%. The unemployment rate remained unchanged at 4.5%.
The Fed expects the negative repercussions of the Corona epidemic to decline with the active vaccination campaign. The Fed also hinted that inflation is rising steadily.
In an earlier announcement, Jim Dimon, CEO of JB (CA:) Morgan, said the bank had half a billion dollars in cash to invest given the high interest rates. Dimon expects the Fed to raise interest rates within 9 months.
And former Fed Governor Kevin Warsh warned in an editorial that making an income is like walking through a one-way door. “Talking about tapering is a sideshow, no matter how well-publicized it is,” Warsh wrote last week. “What matters now is what the Fed does, not what it says.”
Michael Faulkender, the head of economic policy at the Treasury in the latter half of the Trump administration, also noted in an opinion piece last month a 2013 warning from former Director General of the Bank for International Settlements, Jaime Caruana, that maintaining unusual instruments — such as debt monetization — Post-crisis can be detrimental in its support of unsustainable financial practices.
“The first cost is that it masks the true debt-servicing costs of fiscal policy,” Falkander wrote in the Baltimore Sun Inn.
Democratic proposals to spend another $4 trillion involve more debt, despite tax increases to help cover the cost. “Instead of allocating the proposed increases in tax receipts to cover the existing structural deficit, they are looking to create new unfunded entitlements,” said Falkander, who is now a finance professor at the University of Maryland.
This is not the kind of talk you’ll hear from Fed Chairman Jerome Powell at his press conference, and it won’t be an issue in the FOMC meeting minutes when they are released in July.
But someone has to talk about it, and foster a public debate to counter federal collective thinking.