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Federal Reserve Maintains Interest Rates Despite Earlier Report of Higher Inflation

UTC by Ibukun Ogundare · 3 min read
Federal Reserve Maintains Interest Rates Despite Earlier Report of Higher Inflation
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Although the Federal Reserve earlier mentioned continued inflation coupled with a recovering economy, the bank had decided to keep interest rates unchanged.

The Federal Reserve has maintained its short-term interest rates near zero. The Fed’s decision came even though the bank had earlier acknowledged that the economy is accelerating. CNBC further revealed that the Federal Reserve buys a minimum of $120 billion of bonds monthly.

According to the report, the purchase of the bonds is based on two major reasons. The Federal Reserve is making an effort to support the US economy and to support market functioning.

Federal Reserve to Hold Interest Rates Near Zero

Although the Federal Reserve earlier mentioned continued inflation coupled with a recovering economy, the bank had decided to keep interest rates unchanged. The Federal Open Market Committee unanimously agreed on the decision. Also, they did not mention if there would be change to the effect in the near future.

CNBC said that markets are currently pricing at a 5-year inflation rate. The report said the inflation has jumped from 0.8% recorded a year ago to around 2.5%.

Jerome Powell, Fed Chairman, said that the economic rebound is “uneven and far from complete.” He added that inflation pressures could increase over the coming months. He stated further that these “one-time increases in prices are likely to only have transitory effects on inflation.” He specifically said that it would take “some time” before there is “substantial further progress.”

Also, Powell talked about financial stability during a post-meeting news conference. Following Powell’s statement on the interest rates, major stocks in the US declined. Despite that the S&P 500 briefly topped an intraday record, the stock dropped 0.08% to 4,183.18. In addition, the Dow Jones Industrial Average lost 164 points, bringing the in stock to a close of 33,820.38. The Dow Jones fall was caused by a loss in the stock of biotechnology company Amgen Inc (NASDAQ: AMGN). Amgen reported a 7.2% fall in its earnings. Additionally, the Nasdaq Composite shed 0.28% to 14,051.03.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors must adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors. Overall financial conditionals remain accommodative, in part reflecting policy measures to support the economy and the glow of credit to US households and businesses,” wrote the Fed.

FAANGs Release Quarterly Earnings

This week, several tech giants in the US have been releasing their quarterly earnings reports. Microsoft Corp (NASDAQ: MSFT) saw its largest revenue since 2018, fueled by an increase in PC sales. Google parent Alphabet Inc (NASDAQ: GOOGL) also posted a 34% growth year-on-year in revenue. The company’s shares added 3% after news on the profitable financial report.

Similarly, Apple Inc (NASDAQ: AAPL) and Facebook Inc (NASDAQ: FB) also released their earnings reports on the 28th of April.

The chief investment strategist at the Leuthold Group Jim Paulsen commented on the FAANG’s earnings announcement. Paulsen said that the stock market would know the next direction to take after these major tech companies are done releasing their quarterly reports.

Business News, Indices, Market News, News, Stocks
Ibukun Ogundare

Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience. Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.

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