- The FOMC minutes show that President Biden’s stimulus plan was ‘significantly larger’ than the Fed expected.
- Members also stressed that it would probably take a while before the Fed considered policy changes.
- The $ 1.9 billion benchmark, coupled with vaccination and reopening, bolstered the Fed’s growth prospects.
- See more stories on Insider’s business page.
The U.S. bailout plan approved by President Joe Biden last month was bigger than
Federal Reserve
policymakers expected according to the minutes of the Federal Public Market Committee’s March meeting.
Committee members unveiled a more optimistic outlook for the U.S. economy on March 17 following their two-day policy meeting. The increased growth estimates include lower COVID-19 cases, vaccine distribution and stimulus packages adopted by President Donald Trump in December, and Biden’s own aid plan. While some expected Biden’s proposal to be watered down to gain Republican support, the approval of the $ 1.9 billion plan approved those on Wall Street and apparently at the Fed.
“The size of the ARP demanded in March was significantly larger than the staff assumed in the January projection,” the minutes of the meeting showed.
The new stimulus plan and the relaxation of social distance measures contributed to the expectations for a “significant” growth in gross domestic product in 2021. Fed policymakers also expect that continued vaccination will make it possible to further relax the closure measures and grow strongly during the next two years, according to FOMC minutes.
The Fed chose to keep interest rates close to zero and maintain its rate of asset purchases in March. While the central bank’s forward-looking outlook points to the strongest growth since the 1970s, it is not yet ‘time’ to consider tightening monetary conditions, Fed Chairman Jerome Powell told a news conference on March 17. said.
“The state of the economy in two to three years’ time is very uncertain and I do not want to focus too much on the timing of the potential rate hike so far in the future,” he added.
The minutes, published Wednesday, shed more light on the Fed’s plan to maintain its ultra-easy stance on monetary policy. Participants in the meeting noted that “it will probably take a while until there is significant further progress” towards the Fed’s maximum employment and inflation targets of more than 2%, according to the minutes. Powell has repeatedly cited “significant further progress” as the threshold for when officials may consider reducing its asset purchases.
Those who are afraid of an unexpected setback in Fed support can find solace in the FOMC minutes. Several participants in the meeting stressed the importance of giving markets clear communication on how the central bank assesses progress with its objectives, the minutes showed. The Fed will indicate ‘early’ if it is considering a change in its asset purchase plan, the minutes add.
The minutes of the meeting highlight how the Fed is sticking to its message, said Brad McMillan, chief investment officer of Commonwealth Financial Network.
“The big message from the Fed minutes is that the central bank is just as concerned about inflation as it is in public,” he said in an email. “There appears to be no hidden interest in higher rates, suggesting that the interest rate will indeed remain low until unemployment falls to pre-pandemic levels.”