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Federal Reserve to keep interest rates at zero and raises US GDP forecast

Federal Reserve Chair Jerome Powell says ‘no one should be complacent’ about US recovery

The Federal Reserve is anticipating stronger than previously forecasted growth this year, as the vaccination roll-out continues apace and the government’s stimulus efforts start having an impact.

The US central bank has forecasted growth of around 6.5% this year, an increase of its initial expectation of 4.2% in December.

The Fed also confirmed a brighter outlook for the jobs market on Wednesday.

However, the central bank decided against raising interest rates, with most members expecting to keep borrowing costs close to zero until after 2023.

Chair of the Federal Reserve Jerome Powell said he wanted to see a more full recovery before changing policies which are aimed at stimulating the economy.

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Jerome Powell stated that ‘no one should be complacent’ about the US recovery.

Commenting on the Fed keeping a zero-rate outlook, Olivier Konzeoue, fx sales trader at Saxo Markets, said:

“A cautious Fed decided to keep rates near zero and to maintain the pace of its monthly assets purchase at $120Bn but upgraded its economic outlook resulting in a change in the dot plot with seven out of 18 fed officials seeing a rate hike in 2023,” Konzeoue said.

“The Fed therefore deems it important to maintain accommodative financial conditions and is happy to see inflation run hot for some time in order to return to full employment by 2023.”

Powell described any rise above the 2% target as ‘transitory’, and that such an increase would not meet the standard required for a shift in monetary policy.

Connor Campbell, financial analyst at Spreadex, commented on the Chair’s remarks:

“In other words, an increase in interest rates is still off the table until at least 2024, even if 4 members of the FOMC would seek a hike in 2022, and 7 in 2023.”

The Dow reacted accordingly, closing nearly 190 points high to stick its foot across 33,000 for the first time in its history.

With the EU regulator set to announce its decision on the safety of the AstraZeneca vaccine, and automakers up in the aftermath of the Fed decision, the DAX easily outstripped its peers. Climbing 1%, the German index crossed 14,740 for the first time. The CAC, by contrast, added 0.1%, leaving it at a 13-month peak.

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