The Federal Reserve nimbly walked a tightrope on Wednesday, cheering stock and bond investors by tolerating an unusually large divergence between significant revisions to its economic forecast and almost no changes to its policy statement, all supplemented by ultra-dovish remarks by Chair Jerome Powell during his press conference. That act will only become more difficult in front of markets that are hooked on the central bank’s liquidity injections unless the undesirable happens and the U.S., like Europe, finds its recent successes against Covid-19 challenged by new variants of the virus.
By raising its 2021 growth forecast to 6.5%, the Fed joined others in substantially improving its outlook for the U.S. economy. The forecast for the unemployment rate was reduced to 3.5%. Meanwhile, the Fed moved its favored measure of inflation — the PCE — up from 1.8% to 2.4%, for this year, with the core measures rising more moderately to 2.2%.