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U.S. Federal Reserve officials signalled Wednesday that they are in no rush to dial back support for a U.S. economy still struggling amid the pandemic, releasing a fresh set of projections that showed the central bank’s policy interest rate on hold at near-zero for years to come even as growth is expected to pick up considerably in the near term.

The Fed slashed its policy interest rate – which guides borrowing costs throughout the economy – to rock bottom in March, 2020, and chose to keep it there Wednesday, an effort to keep credit cheap and continue stoking growth. Analysts had expected the steady outcome, but they were closely watching the central bank’s fresh set of economic projections, which show officials’ anonymous estimates of how conditions will evolve through 2023 and in the longer run.

The new release showed officials have become more optimistic about the outlook for growth, unemployment and inflation since their December estimates came out – but not to the point that they anticipate a wild overheating of the economy or expect to remove policy support rapidly. Most officials still see rates at rock-bottom over the next three years, meaning they are not penciling in a rate increase until at least 2024.

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“No one should be complacent,” Jerome Powell, the Fed chair, said at a news conference Wednesday afternoon, adding that “the path ahead remains uncertain” and highly dependent on the virus.

Fed officials, in their postmeeting statement, pointed out that some parts of the economy had improved and Mr. Powell said participants pointed to vaccines and fiscal stimulus in revising up their economic expectations. But he said the unemployment rate remains elevated and millions of jobs are still missing.

“Indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the Fed said in its policy statement, reiterating that it is “committed to using its full range of tools” to bolster growth.

The Fed’s inflation estimates now suggest price gains will pop this year, with the headline inflation index temporarily reaching 2.4 per cent before easing to 2.1 per cent by the end of 2023, at the same time as unemployment falls further and more quickly.

The improving job market will come alongside a rapid rebound in overall growth. Officials see economic output growing by 6.5 per cent in the final three months of 2021 versus the same period the prior year, up from 4.2-per-cent growth in their December projections.

“You look at their economic forecasts, they are all better,” said Priya Misra, head of rates strategy at TD Securities. “They’re telling the market that they will let inflation go above 2%.”

Since the Fed last updated its economic projections, U.S. Congress and the White House have passed two large spending packages – a US$900-billion bill in December and another US$1.9-trillion earlier this month. That huge infusion of government cash will put money in consumer bank accounts and could help to avert economic damage that Fed officials had worried about, such as bankruptcies and evictions.

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Americans are also receiving vaccinations at a steady pace, spurring hope the pandemic might abate enough to allow hard-hit service industry companies to more fully reopen at some point this year.

To add to those positive developments, coronavirus cases themselves have eased, and the unemployment rate suggests the economy continues to slowly heal. Joblessness fell to 6.2 per cent in February, the latest Labour Department data showed, down from a peak of 14.8 per cent in April.

Still, there’s a long way to go before the economy returns to full strength. A broader measure of joblessness that Fed officials often cite is around 9.5 per cent, and the United States has about 9.5 million fewer jobs than it did before the pandemic took hold.

The Fed is trying to guide the economy back to full employment and stable price gains, its Congress-given goals.

Mr. Powell his colleagues have been clear they want to see a job market that is back at full employment and inflation that is slightly above 2 per cent and expected to stay there for some time before lifting interest rates.

In fact, there seemed to be a lot of consensus around leaving rates very low for a long time. Just seven officials penciled in rate increases by the end of 2023, while 11 saw that policy tool remaining on hold.

The Fed is also buying US$120-billion in bonds a month – US$80-billion in Treasury securities, plus US$40-billion in mortgage-backed debt. It has been less clear about the criteria for slowing those purchases, saying it needs to see “substantial” further progress before dialing them back.

Mr. Powell indicated Wednesday the Fed was not ready to even start talking about when it might reduce that support.

“We’ll be carefully looking ahead,” he said. “When we see that we’re on track” then “we’ll say so, and we’ll say so well in advance of any decision to actually taper.”

Markets have been jittery in recent weeks. The fact the economic outlook is improving and concern that inflation might shoot higher have pushed up rates on longer-term Treasury securities. That has at times caused stocks to swoon – share prices tend to fall as interest rates increase – although key indexes remain near record highs.

The yield on 10-year government bonds, a closely watched security, had jumped earlier Wednesday.

Investors have come to expect the Fed will not be quite as patient as they had previously anticipated against the brightening backdrop, pulling forward estimates of when the Fed might lift interest rates.

Markets are penciling in slightly higher inflation, and consumer inflation expectations have also risen mildly.

Some prominent economists and commentators have warned the government’s big spending – which dwarfs the response to the 2008 crisis – risks pushing prices much higher by pumping so many dollars into an already healing economy.

The Fed has consistently played down those concerns, pointing out the problem of the modern era has been weak prices – which could risk destabilizing outright price declines, and which saps the Fed’s ability to cut inflation-inclusive interest rates in times of trouble. If prices do take off, officials often say, they have the tools to deal with that.

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Price gains are broadly expected to pop in the coming months as the data are measures against very weak readings from last year, but Mr. Powell and his colleagues draw a distinction between a temporary jump and a sustained move higher.

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