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Economy

The Fed intends to keep interest rates close to 0% until 2023

Washington / The US Federal Reserve (Fed) announced on Wednesday that it plans to keep interest rates close to 0% until 2023, the year in which it expects to meet its inflation target of 2%.

“The recovery has progressed faster than we expected, but overall economic activity is still well below its levels at the beginning of the year,” Fed Chairman Jerome Powell said at the post-conference press conference. a two-day meeting of the Federal Open Market Committee (FOMC).

In its report, the FOMC underscored that “weaker demand and significantly lower oil prices are holding back consumer price inflation.

Thus, the US central bank kept its promise to leave interest rates close to zero, in the range of between 0% and 0.25%, and promised to keep the price of money at that level until inflation increase steadily.

According to Powell, the inflation target of 2% will not be reached until 2023.

However, the Fed chief explained at the press conference that the central bank will not ignore concerns about financial stability or other risks that could impede the achievement of its monetary policy objectives.

Change in economic forecasts

Fed governors also changed their economic forecasts to reflect a smaller drop in gross domestic product (GDP) and a lower unemployment rate in 2020.

In June, the Fed anticipated a 6.5% contraction of real GDP and an unemployment rate of 9.3% by the end of 2020, but the August employment report, which shows an unemployment rate of 8.4% , better than expected, suggests that the economic recovery may be faster than originally expected.

Thus, updated forecasts indicate that the Fed now anticipates a 3.7% contraction in GDP and that the unemployment rate will reach 7.6% by the end of the year.

Despite these improved prospects, Powell said they will not lose sight of the 11 million people who have been left without jobs during the coronavirus pandemic.

The weight of the pandemic in economic activity

Even so, the Fed said Wednesday in its statement that the pandemic “will continue to weigh heavily on economic activity.”

“The path of the economy will significantly depend on the course of the virus. The current public health crisis will continue to affect economic activity, employment and inflation in the short term, and poses considerable risks to the medium-term economic outlook ”, emphasized the governors of the different districts of the Fed.

In recent months, the Federal Reserve has launched a series of monetary policy tools aimed at keeping markets running and the economy afloat, including loan and liquidity programs and interest rates close to 0%.

Among other measures, the Fed can buy more bonds, offer more detailed promises to keep credit easy for years to come, or even take more aggressive action if the pandemic worsens and conditions deteriorate.

The Federal Reserve, which has a dual mandate of price stability and employment promotion, has traditionally used the movement of interest rates to contain inflationary pressures, trying to balance it at the same time with a strong labor market.

Since the US emerged from the Great Recession of 2008-2009, unemployment has fallen from 10% when it was in October 2009 to 3.5% last February, without skyrocketing labor costs or growth. inflation, which has been contained at around 2%.

But the job market outlook has been turned upside down due to the destruction of millions of jobs as a result of the pandemic, which brought the unemployment rate to 14.4% in April. (September 17, 2020, EFE / PracticaEspañol)

(Automatic translation)

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