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US Federal Reserve to release interest rate decision


US Federal Reserve to release interest rate decision

Photo: Reuters/ Kevin Lamarque

The US Federal Reserve’s Federal Open Market Committee will today conclude its two-day March meeting.

The central bank’s benchmark rate will stay at 0.25%, where it has been for the last year during the COVID-19 pandemic. The Fed’s monthly bond-buying program will maintain its current pace of $120 billion. However, other emergency financing programs will close at the end of the month. As economic activity starts to gain momentum, the Fed will rely on inflation numbers to be the main driver of any changes to their monetary policy.

The medium-term outlook for the US economy remains unsettled. The recently passed $1.9 trillion American Rescue Plan, coupled with accelerating vaccination numbers and a loosening of state COVID-19 restrictions, has sparked fears that the economy will overheat, pushing inflation to historic levels. The yield on ten-year Treasury bonds reached a fresh height of 1.6% last week as investors priced in this scenario.

Expect little change to monetary policy in the short and medium-term as the Fed allows inflation to overshoot its target of 2%. Starting in the second half of 2021, markets will likely experience an inverse of 2020, with equity remaining relatively flat as total growth accelerates.

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