Fed expects growth surge, inflation jump in 2021 but no rate hike

VERY DOVISH

Markets had relaxed by the end of Powell's briefing, with the Fed chief and the central bank having avoided potential disruption had they signaled that stronger economic forecasts would lead to a faster-than-expected move to scale back support for the economy.

U.S. stocks ended the day higher, with the S&P 500 index and Dow Jones Industrial Average closing at record highs. Yields on U.S. Treasuries on the longer end of the curve remained elevated, while those on shorter-term debt fell.

"There was just a lot of anxiety which definitely pumped up bond yields so far, but the Fed's very dovish kind of response for a quite strong economic outlook is a big sigh of relief," said Anthony Denier, chief executive of trading platform Webull.

Compared with the Fed's first pandemic-era forecasts, issued in June of last year, the projections issued on Wednesday were a remarkable turnabout after a year some worried would produce a new Great Depression, and during a pandemic that claimed more than half a million lives in the United States.

The unemployment rate is now seen falling to 4.5% by the end of this year, compared to the projection in June of 6.4%. It is forecast to fall even lower next year, reaching levels that would once have been considered near or below what economists view as full employment. The projected 6.5% growth in gross domestic product would be the largest annual jump since 1984.

After the rise in prices this year, the Fed expects inflation to fall back to 2% in 2022.

"Considering the disruption and economic upheaval of the last year, this is mind-blowing," wrote Seema Shah, chief strategist for Principal Global Investors.