Federal Reserve will wait longer before slowing its support for the US economy

Fed Chairman Jerome Powell said risks to economic outlook remain

The Federal Reserve said on Wednesday that the economy is making forward progress thanks to the continued vaccine roll-out.

Continuing to toe the line that inflation is mostly transitory, the Fed also kept its interests rates close to zero.

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The US central bank said that risks to the economic outlook remain, despite positive data regarding jobs and the strength of the economy.

Hinesh Patel, portfolio manager at Quilter Investors, believes that the Fed must act sooner or later if inflation continues to rise:

“Jerome Powell and co. like where the economy is heading and seem content to wait until the data becomes even clearer and as such will continue to sit on their hands for just a while longer yet,” said Patel.

“Unfortunately for them there is very little they can do just now. The effects of this pandemic, and the subsequent recovery, have been felt very differently by varying groups of the population. So far it has been a two-speed recovery with low-income workers continuing to be adversely affected. With so many still relying on government support and not yet back in work or seeking employment, Powell will keep the spending taps on to support the wider economy.”

A time will come when the market will need to see a clearer plan for the reduction in quantitative easing, according to Patel.

“Inflation is a beast that can quickly get out of control and if the Fed has to act harsher than it would have done if it did so previously volatility would ensue.”

“With the recovery well under way and vaccination remaining a priority, the US arguably doesn’t need easing at their current levels. Powell obviously doesn’t want to act too early or make a misstep, but communicating further under what conditions tightening would take place may go some way to placating markets that are worried about price rises getting out of control,” Patel added.

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