As the nation digs out of the brutal coronavirus recession, the economic outlook has turned from uncertain to booming in a matter of weeks, a reversal that presents a delicate balancing act for a Federal Reserve that wants to avoid spoiling the party.
At a two-day meeting that concludes Wednesday, Fed policymakers need to upgrade their forecasts to reflect the brighter days ahead, economists say. But if those officials signal earlier and faster hikes in short-term interest rates, it could douse the recent stock market rally and crimp a recovery that’s just starting to warm up.
At the same time, a Fed that suggests it has no concerns about inflation also could worry investors and inadvertently accelerate recently rising long-term rates, such as for home mortgages. That would pose another hazard for the nascent comeback.
“It’s a fine line to walk,” says Kathy Bostjancic, chief U.S. financial economist for Oxford Economics.
Fueling the turnabout are falling COVID-19 cases, the prospect of a largely reopened economy by midyear amid growing vaccinations, and the two massive COVID relief packages – costing a total $2.8 trillion – that Congress has passed since December. Unemployment benefits have been expanded for 11 million Americans and most individuals will receive $1,400 checks within days or weeks.
Retail sales jumped 5.3% in January and employers added a better-than-expected 379,000 jobs in February.
Goldman Sachs reckons the Fed will lift its 2021 economic growth…