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Illustration: Eniola Odetunde/Axios

Fed chair Jerome Powell sought to reassure financial markets at the Fed's latest policy meeting that even though the economy is improving faster than expected, the housing sector has "fully recovered" and equity markets are hitting all-time highs, the Fed isn't even close to thinking about raising U.S. interest rates.

Why it matters: The bonanza in the stock and housing markets have been buoyed by expectations for the continuation of rock-bottom rates and an avalanche of Fed bond buying.

  • Powell and other central bankers have been warning that the economy faces grave risks from the coronavirus pandemic in the near and medium term.
  • And his words also assured traders, investors and speculators that the party in asset markets can continue.

Details: The lone major change to the Fed's policy statement this month was a promise to continue to buy at least $120 billion of bonds each month "until substantial further progress has been made toward the Committee’s maximum employment and price stability goals."

  • That's great news for stock traders because it means the central bank will continue to push investors out of less risky assets like government bonds and money will keep flowing into riskier investments like equities.

On the other hand: The Fed increased its economic expectations for the economy, raising its real GDP forecast to a contraction of 2.4% in 2020, compared to a decline of 3.7% predicted in September.

  • The Fed also raised its 2021 GDP forecast to 4.2% from 4%.
  • And the central bank now estimates the unemployment rate will fall to 6.7% this year, an improvement from its projection of 7.6% in September.

Driving the news: Stock prices initially edged lower after the release of the statement, but turned higher during Powell's press conference as he doubled and tripled down on the Fed's commitment to keep monetary policy "highly accommodative" for "quite some time."

Data: FactSet; Chart: Axios Visuals

What's next: "There will come a time when the economy does not require increasing amounts of policy accommodation, and when that time comes, and that will be uncertain, and in any case, is some ways off," Powell said during his press conference.

  • "So I can’t give you an exact set of numbers. We, of course, as we approach that point, will be evaluating that."

Powell even weighed in on the debate over whether stock prices had reached unreasonable levels, as many on Wall Street have warned in recent weeks.

The bottom line: Powell argued that while historic market metrics like companies' price-to-earnings ratios were high, "that's maybe not as relevant in a world where we think the 10-year Treasury is going to be lower than it's been historically from a return perspective."

  • "We’re thinking that this could be another long expansion," he said later in his press conference.
  • "What we’re saying is we’re going to keep policy highly accommodated until the expansion is well down the tracks."

Go deeper

Dion Rabouin, author of Markets
Jan 29, 2021 - Economy & Business

The state of the U.S. economy after one year of the coronavirus

Source: St. Louis Fed; Billions of chained 2012 dollars; Chart: Axios Visuals

The U.S. economy shrank by 3.5% last year, the Commerce Department reported, with the country seeing both its largest quarterly GDP decline and its largest quarterly GDP increase in the second and third quarters, respectively.

Where it stands: The 3.5% decline is the worst year for the U.S. since at least the end of World War II, and the economy is more than $473 billion smaller than it was before the pandemic hit.

Stock market has worst week since October amid Reddit frenzy

Photo: Tiffany Hagler-Geard/Bloomberg via Getty Images

Wall Street had its worst week since October as day traders bid up stocks for GameStop, AMC and others that gained popularity on Reddit.

Details: The S&P 500 fell more than 1.9% on Friday. All of the major averages fell more than 3% this week.

Robinhood has a stacked policy team — and it's going to need it

Photo Illustration: Justin Sullivan/Getty Images

The stock-trading app Robinhood has an arsenal of political power brokers it can deploy on its behalf as it faces congressional inquiries over its role in an internet-fueled market manipulation frenzy.

Why it matters: The populist, discount trading platform is going to need that firepower because its decision to suspend trading of stock in GameStop and a number of other companies on Thursday has sparked criticism and promised inquiries from both sides of the aisle.

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