Federal Reserve Keeps Rates Near Zero, Maintains Asset Purchases, Sees Inflation ‘Transitory’

Federal Reserve Keeps Rates Near Zero, Maintains Asset Purchases, Sees Inflation ‘Transitory’

The Federal Reserve on Wednesday said it would keep the benchmark U.S. interest rate near zero and keep buying assets at a rate of $120 billion a month, according to a Fed 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,” according to the Fed statement.

“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,” the Federal Reserve said.

The decision concluded a two-day, closed-door meeting by the U.S. central bank’s monetary-policy panel, known as Federal Open Market Committee, or FOMC.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET.

Central bank policy is particularly important to cryptocurrency investors who believe bitcoin (BTC) is a hedge against inflation and currency debasement.

The Fed has doubled the size of its balance sheet to nearly $8 trillion since the start of 2020, flooding financial markets with freshly created money to support the economy and markets as the coronavirus took a devastating toll on business activity and consumer confidence.

“Adverse base effects will push inflation higher for a time,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a report published on Wednesday before the FOMC announcement. “This hasn’t happened yet. Forecasts aren’t enough. Mr. Powell wants to see actual progress.”

A dull Fed meeting opens the door for the continuation of a risk-on environment, where investors are more willing to enter into higher-return, higher-risk investments from stocks to bitcoin, wrote Deutsche Bank in a report published on Tuesday. Looser monetary policy can also be negative for the U.S. dollar, since lower U.S. interest rates tend to diminish the appeal of Treasury bonds and other dollar-denominated assets.

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