US Fed minutes for the first time hinted at a possible policy tightening reducing bond purchases on the back of economic recovery. However, economists point out that the fall in employment in April has already corrected and the Fed will not change policy until full employment is achieved.
Major US indices fell on Wednesday following the release of April Federal Reserve (Fed) meeting minutes. The S&P 500 index fell 0.29% on Wednesday, the Dow Jones lost 0.48% and the Nasdaq Composite a marginal 0.03%.
Following meetings on 27-28 April, central bank officials led by Chairman Jerome Powell reassured investors that the Fed would not raise rates or reduce the current pace of its $120bn monthly asset purchases until the US economy recovered to pre-pandemic COVID-19 levels and returned to full employment. The Fed's benchmark interest rates were kept at 0%-0.25%.
Market analysts were quick to point out that things have changed since the Fed meetings and today the Fed is still keen to wait for improvements in the labour market before changing policy.
A report from the Labour Department in early May showed that the US economy added a record 266k new jobs for April 2021 compared to 770k in March. This suggests that the US labour market is far from full employment before the pandemic and some analysts believe it will never return to previous levels again.
Also, there is growing concern on Wall Street about inflation, which rose sharply in April to a record 4.2%. However, Fed officials and Treasury Secretary Janet Yellen are not worried about the rising inflationary pressure as they consider it temporary and firmly believe that it is controllable and a response can be made at any time.
The minutes of the Fed meeting in April are based amongst other things on the report of a steep rise in retail sales in March.
US GDP in the first quarter of 2021 recorded an increase by a full 6.4%, economists expect another jump in GDP growth of approx. 10% in the second quarter.
Economists forecast that the number of new jobless claims for the week ending 15 May will be 452,000, slightly down from 473,000 the week before.