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Chief economist update: Not yet time to make a change

"It's not time to make a change
Just relax, take it easy..."

- Cat Stevens

This is the US Federal Reserve's message to the markets at the conclusion of its April FOMC meeting in its efforts to calm concerns over rising inflation expectations that would eventually force the Fed's hand into tapering policy accommodation.

After two days of deliberation, the Committee decided to maintain the status quo -- federal funds rate at 0-0.25% increase its bond purchases by at least US$80 billion a month and agency mortgage-backed securities by around US$40 billion monthly.

"...I know that it's not easy, to be calm when you've found, something going on." That "something" is the sharp improvement in economic activity underpinned by low interest rates, trillions of dollars of government support to households and businesses, falling coronavirus infections and the acceleration in vaccinations.

This is not lost on the Fed, saying: "Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement".

The US National Accounts released the day after backs up the Fed's statement. Preliminary estimates showed that the US economy expanded at annualised rate of 6.4% in the March 2021 quarter following the previous three-month's 4.3% growth.

As per the definition of "annualised growth rate" - the rate that would be registered if the quarterly change were maintained for a full year - both the IMF and the OECD's most recent 2021 US GDP growth forecasts are on the ball, at 6.4% and 6.5%, respectively.

The conventional year-over-year measure also provides reason to be raving as calculations show the US economy growing by 0.4% in the year to the March 2021 quarter following three consecutive quarters of contraction.

The first quarter growth was driven by a 10.7% annualised jump in consumer spending - the one that accounts for about 70% of the US economy. The revival in consumer confidence suggests continued strength, if not further increases, in US consumer spending.

The Conference Board's survey showed consumer confidence surged to a reading of 121.7 in April - the highest level from February last year and the fourth straight month of improvement. Similarly, the University of Michigan's improved to a reading of 86.5 in April - the highest since March 2020 - from 84.9 in the previous month.

There'll be plenty more where this came from because confident consumers are spending consumers. More so, if they're expecting good jobs prospects, continued monetary policy accommodation and increased fiscal largesse.

The latest Conference Board consumer confidence survey for April found that "the percentage of consumers saying jobs are "plentiful" increased from 26.5% to 37.9%, while those claiming jobs are "hard to get" declined from 18.5% to 13.2%".

And there's US president Joe Biden's US$1.8 trillion American Families Plan and, although still in the works, his broader US$4 trillion plus (including US$2.25 trillion in infrastructure spending).

For sure and for certain, this deluge of money would lift economic growth higher and higher but it'll also put upward pressure on consumer prices.

"But take your time, think a lot, think of everything you've got..."

As per the Fed, while measured inflation has risen, it's largely temporary and that "The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain."

"The path of the economy will depend significantly on the course of the virus, including progress on vaccinations."

COVID-19's still devastating many parts of the world. The Fed and other central banks and governments aren't going to rest easy until the pandemic is over and done with.

Read our full COVID-19 news coverage and analysis here.