US Federal Reserve Keeps Rates Near-zero And Likely Will Until 2023 ~Thecitypulsenews

Jerome Powell

The US Federal Reserve maintained its benchmark interest rate range at near-zero on Wednesday, and indicated it will do so until 2023, with the aim of keeping borrowing costs ultra-low until the labour market recovers and inflation picks up.

The rates staying unchanged was in line with market expectations and previous announcements by Fed chair Jerome Powell that he was not even considering raising rates in the near term, and that negative rates were not on the cards.

At his press conference after the announcement, Powell cautioned that the “path ahead remains highly uncertain,” even amid an uptick in overall economic activity and household spending, and signs of green shoots in business investment.

Powell continued to warn that the economy was dependent on the coronavirus outbreak and a full recovery could not be expected until people feel safe to go back to pre-pandemic levels of normal behaviour.

“The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said in a statement.

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Powell told reporters he believed that Congress would need to pass an additional stimulus bill to help the recovery. “More fiscal support is likely to be needed,” he said.

In addition to dropping rates as the pandemic hit, the central bank has also set up loan facilities and is buying bonds, including corporate debt.

The Fed said it would keep up the buying of US Treasuries and agency mortgage-backed securities “at least at the current pace to sustain smooth market functioning,” adding that this would ensure the flow of credit to households and businesses.

The bank, in its projections, indicated it expected no rate increases before 2023.

The Fed was slightly more upbeat on its expectations for economic growth and the jobs market, compared to its June forecast, saying it now predicts GDP will contract 3.7 per cent this year, compared to 6.5 previously.

Unemployment will remain elevated, but the jobless rate will decline this year to 7.6 per cent, compared to the previous 9.3-per-cent expectation; the official rate for August was 8.4 per cent.

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“Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year,” the Fed said, adding that “overall financial conditions have improved in recent months,” crediting policy measures bolstering the economy.

The Fed recently changed its inflation targeting, saying the new model will focus on a 2-per-cent average, meaning the economy will eventually be allowed to run a little hot to make up for years of price growth failing to meet the mark.

The Fed, in its latest statement, specifically spelled out this policy, saying it will “aim to achieve inflation moderately above 2 per cent for some time.” The projections only estimate inflation hitting 2 per cent in two years.

US Federal Reserve Keeps Rates Near-zero And Likely Will Until 2023 ~Thecitypulsenews
Jerome Powell

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