By Paul Kiernan and Michael S. Derby 

Federal Reserve officials pointed to a brighter outlook for the economy at their most recent meeting while agreeing to provide continued support through ultralow interest rates and large monthly bond purchases.

President Biden's $1.9 trillion pandemic relief package, signed into law March 11, prompted Fed policy makers to lift their forecasts for U.S. economic growth and inflation this year ahead of their March 16-17 meeting. Several of them remarked that the measure could improve the position of small businesses hit by the pandemic, lift consumer spending and contain long-term damage to the labor market.

Still, most of the 18 officials at the meeting expected rates to remain pinned near zero through 2023 and expressed no readiness to reduce the bond purchases last month, according to minutes of the meeting, released Wednesday.

"While generally acknowledging that the medium-term outlook for real GDP growth and employment had improved, participants continued to see the uncertainty surrounding that outlook as elevated," the minutes said. Fed officials thought their "current guidance for the federal funds rate and asset purchases was serving the economy well."

Recent weeks have brought a steady stream of encouraging signs for the economy. One-third of the U.S. population has received at least one dose of a Covid-19 vaccine, a ratio that should rise to 75% by early summer if the current pace of vaccination holds steady. Hiring surged in March and unemployment fell, trends that are expected to continue in the months ahead as more businesses reopen to full capacity and consumers return to restaurants, airports and entertainment venues.

While some Fed officials said the scenario could drive employment and spending up faster than anticipated, most didn't see an outsize risk of inflation becoming a problem, the minutes showed.

The central bankers want to see more improvement before they dial back the easy-money policies implemented early last year to counter the pandemic's economic fallout.

"The economic recovery remains uneven and far from complete, and the path ahead remains uncertain," Fed Chairman Jerome Powell said at a press conference after the meeting. "Monetary policy will continue to deliver powerful support to the economy until the recovery is complete."

Fed officials have echoed that view in the weeks since the March meeting.

"Policy is likely on hold for some time," Chicago Fed President Charles Evans said in a virtual appearance Wednesday, while noting that he is upbeat about the economy's prospects.

Dallas Fed President Robert Kaplan, one of four policy makers who anticipate raising interest rates starting in 2022, said in an interview Tuesday that he agrees with the "stance of policy generally."

"There's reason to be optimistic about the future," Mr. Kaplan said. "Having said that, I would also emphasize it is my view that we're not out of the woods yet."

As of March, there were 8.4 million fewer jobs than in February 2020, before the pandemic hit. Inflation has averaged 1.5% over the past decade, below the central bank's 2% target.

The Fed says it won't raise interest rates until the labor market attains maximum employment, inflation reaches 2% and inflation is forecast to moderately exceed 2% for some time. It won't start scaling back its asset purchases until it sees "substantial further progress" toward these goals.

Fed officials haven't specified what unemployment rate would meet that standard. But Tiffany Wilding, an economist at Pacific Investment Management Co., said she thinks it implies a jobless rate of 4% to 4.5%, compared with 6% in March.

She said she expects the Fed's conditions could be achieved by the end of this year or early in 2022, prompting officials to start reducing the pace of its asset purchases.

A couple of Fed officials at the March meeting expressed worry that "highly accommodative financial conditions could lead to excessive risk-taking and the buildup of financial imbalances."

Mr. Kaplan said Tuesday that the potential for market excesses and imbalances heightens the importance of trimming back the Fed's policy support when the time comes.

"If it goes too far, if you have somewhat of a shock or adjustment or you're getting back to normal and people need to some extent de-risk, it can create a severe tightening in financial conditions, which can slow the economy," he said.

Mr. Powell has said the Fed will provide plenty of advance warning on when it could start scaling back its monthly $120 billion in bond purchases. That owes in part to the experience of a 2013 episode known as the taper tantrum, when financial markets reeled after then-Chairman Ben Bernanke said the Fed was weighing a reduction to bond-buying programs initiated after the 2008 financial crisis.

Economists say a similar episode now could cause market interest rates to rise, undermining the Fed's efforts to support the economy.

"Because markets are forward-looking, they can pull forward the timing of tightening such that it actually impacts financial conditions today in an adverse way, and that slows down the recovery," Ms. Wilding said.

Write to Paul Kiernan at and Michael S. Derby at


(END) Dow Jones Newswires

April 07, 2021 15:36 ET (19:36 GMT)

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