Markets rally as Federal Reserve raises growth forecasts and cools rate rise fears – as it happened

Rolling coverage of the latest economic and financial news

• Latest: Wall Street at record close
• Jerome Powell dampens talk of tapering
• Fed predicts US will grow 6.5% this year
• Majority of Fed policymakers still don't expect rate rise before end 2023
• Powell: Love to see faster European growth, and smoother vaccine rollout

8.58pm GMT

Actually, here's one more comment from Unigestion's Cross Asset Solutions team.

They say investors found what they needed in this FOMC meeting: improvement in fundamentals and no early signs of tapering in liquidity injections.

The Fed has made it clear that it sees the improvement that all investors are seeing and responding to. However, no mention has been made of the danger of rising rates or uncontrolled inflation. The rise in inflation is transient", that in our view is the keyword of this meeting. As long as the Fed does not see a longer-lasting growth acceleration, it will not believe in a longer-lasting inflation wave. When asked about a potential tapering, the answer was clear: not now". Goldilocks here we come.

Markets have been served with better growth, controlled inflation expectations and no changes to accommodation for the foreseeable future. The initial reaction weighed on the US dollar, pushed equities 1% higher than their intraday lows while yields on 10-year Treasuries were a touch softer.

The S&P 500 is back to historical highs of 3960, 10-year yields are at 1.66% after reaching 1.685% earlier in the day (their highest level since February last year) while inflation breakevens continued to creep higher around the 2.3% level.

8.39pm GMT

And finally... here's a round-up of expert reaction to the Fed meeting.

Anna Stupnytska, global economist at Fidelity International, says the Federal Reserve sent a dovish message today (helping to push Wall Street to those fresh highs).

The combination of incredibly easy financial conditions, which hardly tightened over the past few weeks, accelerating vaccination campaign, another substantial fiscal package recently legislated and re-opening prospects on the horizon is certainly boosting Fed's tolerance to higher yields.

While inflation and growth forecasts were revised up over the forecasting horizon, the median dot remained unchanged, suggesting no hikes through 2023. This sends a dovish message, revealing that the Fed is serious about pursuing its new FAIT [flexible average inflation targeting] framework."

The updated economic projections released after the Fed's mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren't thinking about thinking raising interest rates.

Even if inflation proves more stubborn, we expect their new framework will allow them to justify leaving rates unchanged over the next few years.

As widely expected, the Fed's new growth forecasts were a major uplift to December's stale predictions, reflecting recent improvements in US macro momentum, the new administration's fiscal stimulus and vaccine-boosted reopening trends. Real GDP forecasts of 6.5%, 3.3% and 2.2% for 2021, 2022 and 2023 and Core PCE forecasts of at 2.2%, 2.0% and 2.1% were typically quite close to consensus expectations.

What was most interesting here was that, despite these forecasts and the Fed's projected decline in the unemployment rate from over 6% today to 3.5% in 2023, the consensus view from Fed governors is that they expect to keep interest rates on hold throughout 2023. While bond markets can take comfort from the Fed delivering on its promise to go slowly with rate hikes, despite inflation creeping above the 2% target, the monetary tide is nevertheless turning. Whereas, back in December, only five of 18 Fed officials predicted higher rates in 2023, seven now expect a rate hike in that year and a third of the committee expects that more than one will be needed. Four participants now project hikes for 2022, compared to just one in December.

Chair Powell had to walk a tightrope in the press conference, balancing a rosier outlook against the Fed's commitment to let the economy run hot. The recent swings in Treasury yields highlight that investors are still not fully comfortable with numerous aspects of the Fed's new target - what exactly their tolerance is for higher inflation, what inclusive full employment looks like in practice and how close to these goals the Fed needs to be before it begins to remove accommodation.

As growth picks up sharply in the coming months, all of these uncertainties point to the potential for ongoing volatility in bond markets. This may create periodic bouts of instability in risk assets but overall we expect the vaccines, stimulus cheques and consumers looking to make up for lost time to translate into strong corporate earnings in the second half of the year, which should propel stock markets higher by year end."