Fed pledges low rates through 2023, or until inflation picks up

WASHINGTON — Federal Reserve officials expect to leave interest rates near zero for years — through at least 2023 — as they try to coax the economy back to full strength after the pandemic-induced recession, based on their September policy statement and economic projections released Wednesday.

The announcement also reinforced the central bank’s August pledge to tolerate slightly higher price gains to offset periods of weak inflation, underscoring that Chair Jerome Powell and his colleagues plan to be extraordinarily patient as they try to cushion the economy in the months and years ahead.

The policy-setting Federal Open Market Committee “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time,” officials said in their statement.

“Effectively we’re saying rates will remain highly accommodative until the economy is far along in its recovery,” Powell said at a news conference after the meeting.

The Fed slashed interest rates to near zero six months ago, as the pandemic first swept the United States and markets tiptoed on the brink of disaster. Such low interest rates help to spur economic growth by encouraging home refinancing, business investment and other types of borrowing. While investors and economists expect borrowing costs to remain at rock bottom for years, the Fed’s declaration that it will wait for inflation to actually heat up before adjusting policy should buttress that outlook.

The Fed updated its Summary of Economic Projections, a set of estimates for how the economy and interest rates will develop in coming years. Officials saw unemployment ending 2020 at a lower rate: The median official expects the rate to average 7.6 percent over the final three months of the year, compared with 9.3 percent when the Fed released its last set of projections in June.

The median Fed official does not expect interest rates to climb higher through the end of the 2023, the projections showed, and sees inflation returning to 2 percent only that year.