The Federal Reserve kept its benchmark interest rate unchanged Wednesday and repeated its view that the coronavirus pandemic will continue to weigh on the domestic economy even as conditions continue to improve.
The Fed also pledged to continue buying $120 billion in Treasury, agency and mortgage-backed securities each month, and for as long as it takes to see "substantial further progress has been made toward the Committee's maximum employment and price stability goals" while keep its key Fed Funds rate in the record low range of 0% to 0.25%.
"The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world," the Fed said in its post-decision statement. "Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement."
"Inflation has risen, largely reflecting transitory factors," the statement added. "Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."
Fed Chairman Jerome Powell told reporters that a 'transitory' rise in headline inflation over 2%, should it happen later this year, would not meet the central bank's standard for raising interest rates.
Benchmark 10-year Treasury note yields were marked modestly lower on the session at 1.62% following Powell's comments in his regular press briefing, while the Dow Jones Industrial Average pared earlier declines to trade 45 points lower on the session at 33,940.00 points
The S&P 500 was marked 0.3% higher at 4,,200 points The Nasdaq Composite, the most sensitive of the three major indices to interest rate changes, rose 0.2% to 14,130 points.
“Jabs and jobs, for now, remain the order of the day for the Fed as they seek to get back to economic normality as quickly as they can," said Paul Craig, portfolio manager at Quilter Investors. "But while they will tolerate an uptick in inflation in the short-term as a result, they will not want it to become stubbornly high and may wish to take some froth out of the market in coming months."
"This is not to be confused for raising rates, but simply continuing to tweak the response as we continue to move through this unprecedented period," he added.
Despite the Fed's insistence that inflation pressures are transitory, near-term pressures are indeed escalating.
The Conference Board's April consumer confidence index surged to 132.6 points, the highest reading in a year, as Americans look into the final months of the coronavirus pandemic with renewed optimism, while inflation expectations were pegged at 6.7%.
Bank of America, which has been tracking data from U.S. earnings conference calls since 2004, noted earlier this week that references to "inflation" have tripled from last year amid decade-high prices for commodities such as copper and palladium and a massive surge in global oil prices from last year's pandemic-induced plunge as well corn and soybeans.