Currency watchdogs expect GDP growth of 6.5 percent for 2021. Leave key interest rate at 0 to 0.25 percent. Economists warn of overheating.

7:06 p.m., March 17, 2021

The US Federal Reserve has confirmed its very loose monetary policy. The key rate remains in the range of 0.00 to 0.25 percentannounced the central bank in Washington on Wednesday. Economists had expected the decision. With its loose monetary policy, the Fed is trying to cushion the consequences of the corona pandemic for the US economy.

US investors have welcomed the latest monetary policy decisions by the US Federal Reserve (Fed). The leading index Dow Jones Industrial rose to a record high in late trading on Wednesday and was most recently 0.60 percent higher at 33,022.33 points.

At least so far, the Fed has hardly had any intention of counteracting higher inflation with higher interest rates, the market said. Higher interest rates are particularly troubling for the strongly growth-oriented technology companies because they increase their financing costs.

Significantly stronger US growth

The US Federal Reserve (Fed) is expecting significantly stronger growth in the world’s largest economy this year. The gross domestic product (GDP) of the USA is expected to grow by 6.5 percent this year, came out on Wednesday from a new economic forecast by the central bank. In the previous forecast from December, the central bank was still assuming growth in economic output of 4.2 percent.

The central bank now also expects an inflation rate of 2.4 percent, significantly higher than the 1.8 percent assumed in December. Nevertheless, according to the forecast, an increase in the key interest rate is not expected up to and including 2023.

In addition, the vaccination campaign, which has got underway, and falling infection numbers are likely to provide economic tailwind and US President Biden’s $ 1.9 trillion stimulus package. It contains, among other things, personal checks for millions of Americans.

Unemployment rate at only 4.5 percent

The unemployment rate is expected to fall to an annual average of 4.5 percent. In December, the Fed had expected 5.0 percent for 2021. The rate in the USA was still 6.2 percent in February as a result of the corona crisis. That is significantly more than before the pandemic, when the rate fell to 3.5 percent, the lowest level in decades. Compared to early 2020, the number of jobs has fallen by almost 10 million.

Warning of overheating

“Unlike in Europe, the success of the US vaccination campaign and the rather oversized 1.9 trillion stimulus package mean that monetary policy can now take a back seat,” says the Mannheim ZEW economist Friedrich Heinemann. “For the US economy, there is already a sign for the fall Risk of overheating “With the containment of the pandemic, the pent-up consumer demand of US consumers will lead to a demand boom.” If the full effects of the stimulus package unfold, inflation could quickly become uncomfortable. The rise in bond yields is now a natural market reaction that could even help put US growth on a more sustainable path. So the Fed would do well not to intervene against the market on bond yields. “