Fed Indicates Long Stay Of Near Zero Rates

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The US Federal Reserve has kept its benchmark interest rate unchanged at the record-low level of near zero after concluding the final policy meeting of 2020, while expecting rates to stay there at least through 2023.

“Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the Fed said in a statement after the meeting, noting the path of the economy will depend significantly on the course of the virus, Xinhua news agency reported.

“The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said, deciding to maintain the target range for the federal funds rate at 0-0.25 percent.

The central bank also said that it will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until “substantial further progress has been made” toward the Fed’s maximum employment and price stability goals.

“We believe the increase in our balance sheet has materially eased financial conditions and is providing substantial support to the economy,” Fed Chairman Jerome Powell said at a virtual press conference Wednesday afternoon.

US Federal Reserve

“Our enhanced balance sheet guidance will ensure the monetary policy stays highly accommodated as progress happens,” he said.

Powell also said he expected the US economy to “perform strongly” in the second half of next year as more people are getting vaccinated.

“You have to think that sometime in the middle of next year you will see people feeling comfortable going out and engaging in a broader range of activities,” he said.

The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of US treasuries and agency mortgage-backed securities to repair financial markets.

Most Fed officials expected that interest rates would remain near zero at least through 2023, according to the Fed’s new economic projections released on Wednesday.

The new projections also showed that Fed officials expected the US economy to contract by 2.4 per cent this year, better than their previous projection of a decline of 3.7 per cent in September.

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