The Fed upgrades growth, but holds settings

<p>Kia ora,</p><p>Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news markets have been waiting all week for - the Fed to speak. </p><p>They has been meeting and today sharply <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf" target="_blank"><strong>upgraded their forecasts</strong></a> for American economic growth in 2021. Elsewhere they left their pandemic setting for monetary policy <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20210317a.htm" target="_blank"><strong>unchanged</strong></a> in what is essentially a cautions review. But that growth upgrade reinforces market moves to raise long term benchmark interest rates on the basis that this growth will be inflationary at some point, and relatively soon. The Fed however thinks the inflationary bump will be short-lived.</p><p>The US Treasury is quickly disbursing stimulus payments. So far US$242 bln has been paid out to 90 mln people. This is less than halfway, so the amount of direct juice straight to households is very large. Even larger are other program support payments, taking the eventual total to US$1.9 tln or +9% of US GDP. Most professional analysts see Q1-2021 growth running at close to +5% in the US. The AtlantaFed's GDPNow forecast has it running at almost +6%. For an economy as large as the US, this is very large, and don't forget, most of the Biden stimulus plan won't have much impact in Q1-2021. It's effect will be felt in the rest of 2021.</p><p>It could result in the largest American economic expansion in a generation.</p><p>In advance of that, US <a href="https://www.census.gov/construction/nrc/pdf/newresconst.pdf" target="_blank"><strong>housing starts tumbled</strong></a> in February when no change was expected. It was an unwelcome surprise and is -9% lower than for the same month in 2020. "The weather" is getti