U.S. Federal Reserve signals that a far easier monetary policy is in store for 2024

The U.S. Federal Reserve announced on Thursday that it plans to keep interest rates low and continue its bond-buying program for 2024. This is a clear indication that the central bank is not worried about inflation and is committed to supporting the economic recovery from the pandemic.

The Fed’s statement was in line with the expectations of most analysts and investors, who had anticipated a dovish stance from the policy makers. The Fed also revised its economic projections, showing a brighter outlook for growth and employment, but a lower inflation forecast.

The Fed expects the U.S. economy to grow by 6.5% this year, up from 4.2% in December, and the unemployment rate to fall to 4.5% by the end of 2021, down from 5% previously. However, the Fed also expects inflation to remain below its 2% target for the next three years, despite the massive fiscal stimulus and the reopening of the economy.

The Fed’s chair, Jerome Powell, reiterated that the central bank will not raise interest rates until it sees “substantial further progress” towards its goals of maximum employment and stable prices. He also said that the Fed will continue to buy $120 billion worth of Treasury and mortgage-backed securities per month until it sees “significant further progress”.

Powell stressed that the Fed’s policy is based on actual outcomes, not forecasts, and that it will not react to temporary spikes in inflation caused by supply bottlenecks or base effects. He said that the Fed will be patient and flexible, and that it will communicate well in advance any changes in its policy stance.

The Fed’s decision to maintain a highly accommodative monetary policy for 2024 reflects its belief that the U.S. economy still faces significant challenges and risks from the pandemic, and that it needs sustained support from both fiscal and monetary authorities.

The Fed’s message also signals its confidence that it has the tools and the credibility to deal with any potential inflationary pressures in the future, without jeopardizing its long-term objectives. The Fed’s announcement was welcomed by the financial markets, which rallied on Thursday.

Consumer spending is the largest component of the US gross domestic product (GDP), accounting for about 70% of the total. The Fed’s policy lowers the cost of borrowing for consumers, making it easier for them to finance purchases of goods and services, such as cars, appliances, vacations, and education. Lower interest rates also increase the disposable income of consumers, as they pay less on their mortgages, credit cards, and other debts.

This boosts their confidence and willingness to spend. Moreover, the Fed’s policy stimulates the stock market and the housing market, which increases the wealth of consumers and encourages them to spend more.

Business investment is another key driver of the US economy, contributing about 15% of the GDP. The Fed’s policy lowers the cost of capital for businesses, making it more attractive for them to invest in new equipment, machinery, software, research and development, and expansion. Lower interest rates also improve the cash flow of businesses, as they pay less on their loans and bonds.

This enhances their profitability and ability to invest. Furthermore, the Fed’s policy supports the demand for US goods and services from domestic and foreign consumers, which increases the sales and revenues of businesses and motivates them to invest more.

The stock market hit new record highs, while the bond market stabilized after a recent sell-off. The dollar weakened against other major currencies, while gold and oil prices rose. The Fed’s policy is expected to boost consumer spending, business investment, and housing activity, as well as support global growth and trade. The Fed’s policy is also likely to have spillover effects on other countries, especially emerging markets, which may benefit from lower borrowing costs and stronger demand from the U.S.