The Fed says it will keep the stimulus going for years

This means that it could take years until interest rates rise again. The Fed’s “point plot,” which reflects central bank policymakers ’forecasts, shows no increase in rates this or 2021. Even in 2022, most policymakers believe that rates will remain at current rate rates.

“We’re not thinking about raising rates – we’re not even thinking about raising rates,” Fed President Jerome Powell told reporters at a news conference Wednesday.

The market seemed pleased with the central bank’s update, and stocks jumped sharply. Lower interest rates allow companies to borrow at lower rates, which is good for stocks.

The Fed also said it would increase purchases of government securities and mortgage-backed securities to keep the market running smoothly.

“For now, it’s giving the market what it wanted and needed,” says Drew Matus, chief market strategist at MetLife Investment Management.

The Fed cut interest rates to almost zero in March at the start of the coronavirus pandemic. Since then, the central bank has set aside billions of dollars to support financial markets, companies, and state and local governments.

But the central bank, like the federal government, may have to do more to get the economy back on its feet, Powell reiterated at a news conference Wednesday.

Unemployment crisis

One of the Fed’s main goals is to foster economic conditions that achieve stable prices and maximum sustainable employment.

The central bank acknowledged the “enormous human and economic hardships” the coronavirus parody has caused people around the world. By December, the Fed expects the unemployment rate to fall to 9.3%, from 13.3% in May, but still well above the 3.5% in February – a nearly 50-year low.

Millions of people won’t get their old jobs, “and maybe won’t find them for a while,” Powell said during a news conference.

READ  GOP-led panel tries to remove Confederate names on military property amid Trump's opposition

Even by the end of 2022, the unemployment rate is projected to be 5.5%, which is significantly higher than at the beginning of this year.

Powell reiterated that some demographic group, primarily women, black and Latin American workers, bear the bulk of the unemployment crisis.

The Fed does not expect economic difficulties to stop any time soon: it has updated its economic projections for the year predicting a 6.5% drop in gross domestic product, the broadest measure of the economy in 2020.

But Powell dismissed comparisons to the Great Depression, telling reporters he didn’t think it was “a good example or likely outcome for a model of what’s going on here at all, I really don’t know.”

For example, the uniqueness of a pandemic recession is that it is somehow created by man: the economy has been artificially shut down to prevent the spread of the virus.

“The road ahead for the economy is very uncertain and continues to depend heavily on the path of the pandemic,” Powell said.

Leave a Reply

Your email address will not be published. Required fields are marked *