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The Federal Reserve Committee (Fed) concluded the September interest rate decision-making meeting on Wednesday (16), announcing that the interest rate policy will remain unchanged, maintaining the benchmark interest rate corridor in the range of 0% to 0.25% and adjusting for GDP, inflation and unemployment expectations.
The highlights of the latest Fed interest rate statement and Bauer’s press conference are as follows:
Key 1: Maintain the zero interest rate policy and do not raise interest rates before the end of 2023
The Federal Reserve Bank of America (Fed) announced the latest decision on interest rates on Wednesday (16), maintaining an interest rate policy close to zero.
The latest statement mentioned that among the 17 officials, interest rates are expected to remain close to zero until at least next year, and 13 are expected to remain unchanged until 2023.
Fed Chairman Bauer said: “We will continue to monitor developments and prepare to adjust our policy plans as appropriate.”
Ball said the Fed will keep interest rates close to zero until the US inflation rate rises above the 2% target level over time and is expected to maintain a loose monetary policy stance until that employment is maximized.
Priority 2: Review the economic vision
The Fed predicts that this year’s GDP contraction will be less than previously anticipated, but predicts that the recovery will slow in the next few years. Bauer said the pace of economic recovery is faster than expected, but Bauer also warned that future prospects are still fraught with high uncertainty.
In terms of GDP, the Fed estimates that US GDP will shrink 3.7% in 2020, which is higher than the Fed’s estimate of 6.5% in June. US GDP will grow 4% in 2021.
As for the unemployment rate, the 2020 estimate is 7.6%, which is better than the June Fed estimate of 9.3%. The unemployment rate in 2021 is 5.5%.
In terms of the inflation rate, it is estimated to be 1.2% in 2020, better than the Fed’s estimate of 0.8% in June and 1.7% in 2021.
The long-term federal funds rate is estimated at 2.5%, maintaining the June estimate.
Priority 3: Structure of the average inflation target
Last month, the Fed moved to implement a new “average inflation target” policy framework.
The last statement mentioned that since the inflation rate is still lower than the long-term goal, the FOMC will keep the inflation rate slightly above 2% for a period of time, so that the rate of inflation will average 2% over a period of time. The expansion is expected to remain at 2%.
The FOMC expects to maintain a loose monetary policy until these results are achieved.
Ball said the Fed expects inflation to improve eventually. This is a very solid guide for the future. We believe it will be a lasting guide to the future that will provide important support to the economy.
Key 4: the Fed provides long-term financial support
Since the new corona epidemic, the Fed has released an unprecedented series of policy tools, and the Fed reiterated Wednesday that it will use all its tools to support the economic recovery.
Bauer said Wednesday that he hopes that “a very accommodative stance, keeping interest rates low and continuing to buy US Treasuries and mortgage securities” will become a powerful tool to stimulate economic activity over time.
Ball said the Fed is ready to adjust its asset purchase plan in good time, but there are currently no signs that the Fed will adjust its bond purchase plan soon.
The Fed’s statement stated that the Fed reiterated that it will continue to buy US Treasuries and mortgage-backed securities “at least at the current rate” to keep the market functioning smoothly and help promote favorable financial conditions, thereby supporting the flow of credit to households and companies.
Approach five: urge Congress to act
Temporary additional unemployment benefits are about to run out and political stagnation in the new round of stimulus policies may push the economy back. Bauer once again called on Congress to act.
Bauer said: “FOMC officials hope that Congress can provide more stimulus measures … For Congress rather than the Fed, my feeling is that more financial assistance may be needed. The new corona epidemic has caused about 11 million people lose their jobs in the US When it comes to getting through tough times, more support from Congress may be needed. “
Key Six: Reiterate that the Fed is not out of ammunition
The Fed still has a lot of tools to stimulate the economy, Bauer said: “Of course I wouldn’t say we have no ammunition. Not at all. First of all, we have a lot of tools. We have lending tools, balance sheets and future guidance.”
Bauer said: “We (the Fed) still have a lot to do. The current stance of interest rate policy is adequate to support the economy and powerful … What is certain is that we are not out of ammunition.”
Wall Street Analysis:
Michael Arone, chief investment strategist at State Street Global Investment Advisors, said: “The market realized that the Fed had not taken any further action and the stock market went black or gave up on earnings.”
James Knightley, ING’s chief international economist, said: “Bauer will use this press conference to reinforce the message that the Fed is not interested in raising interest rates at any point in the next few years, which should help stabilize the short-term yield curve “.
Mark Haefele, chief investment officer at UBS Global Wealth Management, commented that the ammunition delivered by the Fed is far from sufficient and investors should be in a favorable position in the stock market.
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