US Federal Reserve Doesn’t Touch Key Interest Rate: Signs of Long-Term Loose Monetary Policy | 17.09.20

In the new projections, the Council’s 17 monetary watchdogs stated that they expect to keep the key interest rate near zero at least until next year. And 13 of them predicted that the key rate will remain there until 2023. The key interest rate was left between 0.00 and 0.25 percent. Economists and brokers expected this decision.

The Fed also wants to continue its bond purchases “at least” at the current level, that is, government bonds worth $ 80 billion a month and mortgage bonds worth $ 40 billion.

The Fed recently decided to change its strategy, which gives it more room for maneuver to move toward the inflation target. Accordingly, the inflation rate can remain above the ideal value of 2 percent for a longer period of time if this target value has been lowered for a long time. This gives the Fed more flexibility in deciding the key interest rate.

This should primarily benefit the US job market, which has been severely affected by the pandemic. Going forward, the Fed’s top priority will be full employment. The pandemic has caused a deep recession in the United States with massive unemployment.

Fed Chairman Powell told the press conference that the current direction of the Fed’s monetary policy is appropriate. However, more fiscal support is likely to be needed. These statements provided some support for the dollar against the euro.

“The Fed’s main focus remains on the risks emanating from the corona pandemic and mitigating these risks using all instruments of monetary policy,” wrote Uwe Burkert, chief economist at Landesbank LBBW. “When it comes to continuing the economic recovery, the Fed is again largely alone after the US Congress failed to agree on another stimulus package.” If the political lockdown persisted even after the presidential elections, the pressure on the central bank would increase again to further open the money locks.

Dow Jones Newswires / awp international