The Federal Reserve left interest rates near zero, saying it would keep them there until at least 2023 to help the US economy recover from the coronavirus pandemic.
The Federal Open Market Committee “hopes to maintain an accommodative monetary policy stance” until it achieves an average inflation of 2% over time and long-term inflation expectations remain well anchored at 2%, said the central bank in a statement Wednesday after two daily policy meetings.
The statement reflects the central bank’s new long-term policy framework in which officials will allow inflation to exceed its 2% target after periods of underperformance. That change was announced by Powell last month at the central bank’s annual Jackson Hole policy conference.
The vote, at the last scheduled FOMC meeting before the US presidential election on November 3, was 8-2. Dallas Fed Chairman Robert Kaplan disagreed, preferring to maintain “greater policy rate flexibility,” while Minneapolis Fed Chairman Neel Kashkari disagreed in favor of expecting an increase. of rates until “core inflation has reached 2% on a sustained basis.”
President Jerome Powell will hold a press conference at 2:30 pm Washington time. Powell and other Fed officials have stressed in recent weeks that the US recovery is largely dependent on the nation’s ability to better control the coronavirus, and that more fiscal stimulus is likely needed to support jobs and income.
On Wednesday, the Fed pledged to use its full range of tools to support the economic recovery. The central bank repeated that it will continue to buy Treasuries and mortgage-backed securities “at least at the current rate to keep the market running smoothly.” A separate statement Wednesday pegged those amounts at $ 80 billion of Treasuries per month and $ 40 billion of mortgage-backed. values.
Officials see rates remaining ultra-low until 2023, based on the median projection of their quarterly forecasts, although four officials scored at least one increase in 2023.
In other updates to the quarterly forecasts, Fed officials see a shallower economic contraction this year than before, but a slower recovery in the coming years.
In addition to slashing borrowing costs in March, the central bank has injected trillions of dollars into the financial system through bond purchases and launched a series of emergency loan services to keep businesses afloat. The economy has partly recovered from the steepest slowdown on record and some sectors such as housing are doing well, but Covid-19 continues to kill thousands of Americans each week, unemployment remains high, and industries like hospitality and travel are doing well. depressed.
Additionally, extra-temporary unemployment benefits are running out and political stalemate over a new round of stimulus threatens to roll back the economy. The uncertainty could fall on government policies at least until the outcome of the presidential and legislative elections is clear. Republicans, including President Donald Trump, who follows challenger Joe Biden in national polls, have proposed a smaller aid package than Democrats.
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