Why the Federal Reserve Will Keep Interest Rates Near 0% Until 2023 – Good News for Investors
Fed does not plan to change rates until 2023
The Federal Reserve has pledged to work harder to rebuild the U.S. economy by announcing massive asset purchases and lower interest rates over time.
The federal funds rate remained unchanged (0 – 0.4%) and will maintain this level until the American labor market recovers and inflation rises to 2%.
This seems like a distant prospect, given current unemployment and growth rates. consumer prices in the last 12 months (1.3%).
Claims for unemployment benefits fell, but four times higher than the pre-crisis level.
«The labor market situation has improved, but is still far from full recovery», – said the Fed chairman Jerome Powell.
A survey of Fed officials showed that the regulator expects to maintain current rates until 2023. In June, growth was projected to begin in 2022.
Why this strategist says the Fed won’t raise interest rates until 2023
This update of the Fed’s monetary policy is the first since announcement of changes in its structure in July. Under the new strategy, the Fed will prioritize employment growth over inflation spikes.. The regulator is still targeting inflation of 2%, as it has been for decades, but does not plan to promptly raise interest rates in the future to counter price increases.
In addition, the Fed will buy more Treasury and mortgage-backed securities over the next few months to keep the markets functioning..
Fed has updated its economic forecasts and the picture seems to have improved. For example, the average unemployment rate is expected to be 7.6% in 2020, below the forecast of 9.3% in June.. GDP decline forecast revised from 6.5% to 3.7%.
«The ongoing crisis will continue to put pressure on economic activity, employment and inflation. This poses significant risks to the economy in the medium term.», – said in a statement from the regulator.
Dallas Fed President Robert Kaplan believes that the regulator should nevertheless revise rates, despite the fact that almost all of his colleagues believe that the economy has weathered the blow of the pandemic and is on the way to growth.
Powell is not worried about the lack of full consensus among officials. He considers this to be the norm.