Arab Times

Fed sees rates near zero through 2023, per­haps longer

Pol­i­cy­mak­ers don’t ex­pect in­fla­tion to hit the 2% tar­get un­til end of 2023.

- Business · Unemployment · Finance · Infectious Diseases · Employment · Society · Health Conditions · Washington · Federal Reserve System · Jerome Powell · Democratic Party (United States) · United States Department of Commerce

WASH­ING­TON, Sept 17, (AP): With the econ­omy still strug­gling to re­cover from the pan­demic re­ces­sion, Fed­eral Re­serve pol­i­cy­mak­ers sig­naled Wed­nes­day that their bench­mark short-term in­ter­est rate will likely re­main at zero at least through 2023 and pos­si­bly even longer.

Fed chair Jerome Pow­ell said at a press con­fer­ence that while the econ­omy has re­bounded more quickly than ex­pected, the job mar­ket is still hurt­ing and the out­look is un­cer­tain. The un­em­ploy­ment rate has fallen steadily since the spring but is still 8.4%.

“Although we wel­come this progress we will not lose sight of the mil­lions of Amer­i­cans that re­main out of work,” Pow­ell said.

The Fed left its bench­mark in­ter­est rate un­changed at nearly zero, where it has been pegged since the virus pan­demic in­ten­si­fied in March. The 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 pol­icy also car­ries the risk of in­flat­ing a bub­ble in stocks or other fi­nan­cial as­sets.

Fed of­fi­cials said in a set of quar­terly eco­nomic pro­jec­tions that they

ex­pect to keep rates at zero through 2023. And in a state­ment re­leased after its two-day meet­ing, the Fed said it wouldn’t raise bor­row­ing costs un­til in­fla­tion has reached 2% and ap­pears likely to “mod­er­ately ex­ceed” that level for an ex­tended pe­riod.

The Fed’s pro­jec­tions show that pol­i­cy­mak­ers don’t ex­pect in­fla­tion to hit that tar­get un­til the end of 2023.

“The Fed is now more dovish, by a long shot, than it has ever been,” said Stephen Stan­ley, chief econ­o­mist at Amherst Pier­pont. Dovish means keep­ing bor­row­ing costs low to sup­port more hir­ing.

On Wall Street, stocks ini­tially got a short boost from the Fed’s ac­tions be­fore turn­ing lower. The S&P 500 fell 0.5%. Still, some mar­ket an­a­lysts liked what they heard from the Fed.

“A bet­ter econ­omy and a dovish Fed, that is a nice combo,” said Ryan Det­rick, chief mar­ket strate­gist for LPL Fi­nan­cial.

But many an­a­lysts were dis­ap­pointed the Fed was not more spe­cific about how long it wanted in­fla­tion to stay above 2%, one likely rea­son that the stock mar­ket ul­ti­mately fell.

Carl Tan­nen­baum, chief econ­o­mist at North­ern Trust, said the Fed will likely keep rates at nearly zero for at least five years. The Fed held its rate that low for seven years dur­ing and after the 2008-2009 re­ces­sion.

The Fed ul­ti­mately first hiked rates in De­cem­ber 2015, when the un­em­ploy­ment rate was 5%. On Wed­nes­day, the Fed pro­jected that it will keep rates at zero in 2023 even as it fore­casts un­em­ploy­ment will fall to 4%.

Pow­ell said the Fed’s bench­mark rate will stay low “un­til the ex­pan­sion is well along, re­ally very close to our goals and even after.”

The Fed has sig­nif­i­cantly al­tered its in­fla­tion goal, from sim­ply reach­ing to 2% to push­ing in­fla­tion above that level so that it av­er­ages 2% over time.

That is in­tended to off­set long pe­ri­ods of in­fla­tion be­low that level.

If busi­nesses and con­sumers come to ex­pect in­creas­ingly lower in­fla­tion, they act in ways that en­trench slower price and wage gains, which can be a drag on eco­nomic growth.

Pow­ell re­it­er­ated his sup­port for 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. Some ear­lier mea­sures aimed at help­ing con­sumers, such as an ex­tra $600 in un­em­ploy­ment ben­e­fits, have ex­pired.

“My sense is that more fis­cal sup­port is likely to be needed,” Pow­ell said.

The Fed also said Wed­nes­day that it will con­tinue pur­chas­ing about $120 bil­lion in Trea­surys and mort­gage-backed se­cu­ri­ties a month, in an ef­fort to keep longer-term in­ter­est rates low.

Since March, the Fed has flooded fi­nan­cial mar­kets with cash by mak­ing such pur­chases and its bal­ance sheet has bal­looned by about $3 tril­lion.

The Fed an­nounced a broad up­date to its over­all strat­egy last month, in which it said that its goal of reach­ing “max­i­mum em­ploy­ment” is “a broad and in­clu­sive goal.”

Pow­ell said Wed­nes­day that Fed will con­sider the un­em­ploy­ment rate for Blacks and other dis­ad­van­taged groups when it makes its in­ter­est-rate de­ci­sions. Ac­tivists have ar­gued that in the past the Fed has hiked rates when job­less­ness among AfricanAme­r­i­cans was still too high. Democrats in Congress have in­tro­duced leg­is­la­tion to re­quire the Fed to take un­em­ploy­ment rates for dif­fer­ent groups into ac­count.

“If we want to have the high­est po­ten­tial out­put and the best out­put for our econ­omy we need that pros­per­ity to be very broadly spread in the longer run,” he said.

On Wed­nes­day, the lat­est eco­nomic re­port seemed to sup­port Pow­ell’s view of an econ­omy on the mend but not fully healthy. The Com­merce De­part­ment said re­tail sales rose 0.6% in Au­gust, the fourth straight gain but the slow­est since sales started grow­ing again in May. The fig­ure suggests that the end of the ex­tra $600 in un­em­ploy­ment ben­e­fits weighed on spend­ing.

 ?? (AP) ?? In this file photo, Fed­eral Re­serve Board Chair­man Jerome Pow­ell, re­flected in the sneeze guard set up between him­self and mem­bers of the House Com­mit­tee on Fi­nan­cial Ser­vices, speaks dur­ing a hear­ing on over­sight of the Trea­sury De­part­ment and Fed­eral Re­serve pan­demic re­sponse on
Capi­tol Hill in Wash­ing­ton.
(AP) In this file photo, Fed­eral Re­serve Board Chair­man Jerome Pow­ell, re­flected in the sneeze guard set up between him­self and mem­bers of the House Com­mit­tee on Fi­nan­cial Ser­vices, speaks dur­ing a hear­ing on over­sight of the Trea­sury De­part­ment and Fed­eral Re­serve pan­demic re­sponse on Capi­tol Hill in Wash­ing­ton.

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