The Oklahoman

Fed sees rates near zero at least through 2023

- By Christophe­r Rugaber

WASHINGTON — The Federal Reserve expects to keep its benchmark interest rate pegged near zero at least through 2023 as it strives to accelerate economic growth and drive down t he unemployme­nt rate.

The central bank also said Wednesday that it will seek to push inflation above 2% annually. The Fed left its benchmark short-term rate unchanged at nearly zero, where it has been since the pandemic intensifie­d in March.

The Fed's benchmark interest rate influences borrowing costs for homebuyers, credit card users, and businesses. Fed policymake­rs hope an extended period of low interest rates will encourage more borrowing and spending, though their new policy also carries risks of inflating stock or causing other financial market bubbles.

The Fed's moves are occurring against the backdrop of an improving yet still weak economy, with hiring slowing and the unemployme­nt rate at 8.4%.

Still, at a virtual conference with reporters following the statement, Fed chair Jay Powell said that the economy has recovered more quickly than the Fed had expected. The Fed updated its forecast for GDP to a decline of 3.7% compared to a June forecast of a 6.5% drop. On employment, the Fed projected an unemployme­nt rate at the end of the year of 7.6% instead of the 9.3% it projected in June.

Still, Powell acknowledg­ed the economic outlook remains highly uncertain and depends heavily on the ability of the U.S. to get control of the pandemic.

“A full economic recovery is unlikely until people are confident that it is safe to re-engage ina wide variety of activities ,” Powell said.

During his news conference, Powell, as he has in the past, supported more spending by Congress to help the economy recover. Congress is deadlocked on more financial relief because of disagreeme­nts on the size of the package between Democrats and Republican­s.

“My sense is that more fiscal support is likely to be needed,” Powell said. “There are still roughly 11 million people out of work because of the pandemic.”

The Fed's statement formalized a change in its policy toward inflation first announced by Powell last month.

The Fed said that that because inflation has mostly fallen below i ts target of 2% in recent years, Fed policymake­rs now “will aim to achieve inflation moderately above 2 percent for some time.” It also says it will keep rates at nearly zero until “inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

The change reflects a growing concern at the Fed that in recessions, inflation often falls far below 2%, but it doesn't necessaril­y reach 2% when the economy is expanding. Overtime, that means inflation on average falls further from the target. As businesses and consumers come to expect increasing­ly lower inflation, they act in ways that entrench slower price gains.

The Fed prefers a little inflation because that gives the central bank more room to cut or raise short-term interest rates.

 ?? WASHINGTON POST VIA THE ASSOCIATED PRESS] ?? In this June 30 photo, Federal Reserve Board Chairman Jerome Powell speaks during a hearing on oversight of the Treasury Department and Federal Reserve pandemic response on Capitol Hill in Washington. [BILL O'LEARY/ THE
WASHINGTON POST VIA THE ASSOCIATED PRESS] In this June 30 photo, Federal Reserve Board Chairman Jerome Powell speaks during a hearing on oversight of the Treasury Department and Federal Reserve pandemic response on Capitol Hill in Washington. [BILL O'LEARY/ THE

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