Fed Meeting: Rates to Be Unchanged Until 2023
The Federal Reserve concluded its two-day Federal Open Market Committee meeting today and reiterated what it had said for many months: there are no expected rate hikes until 2023, and the path of the economy will depend on the course of the virus.
“The economic fallout has been real and widespread,” Fed chairman Jerome Powell said in the press conference following the FOMC meeting. But, he added, “Some of the very worst economic outcomes have been avoided by swift actions.”
According to a Fed statement “the COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2%.”
According to projections, GDP growth will be at 3.3% in 2022 and 2.2% in 2023, with a “longer run” of 1.8%, according to Fed meeting participants’ projections released today. Unemployment rate projections are 4.5% for December 2021, 3.9% for December 2022 and 3.5% for December 2023, according to the Fed.
Federal funds rates are expected to jump to 2.5% after 2023.
The Fed said in the statement that the path of the economy will depend significantly on the course of the virus, including progress on vaccinations.
“The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”
The Committee said it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and expects to maintain an accommodative stance on monetary policy until these outcomes are achieved.
In doing so, it has decided to keep the target range for the federal funds rate at 0% to 0.25% and 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% and is on track to moderately exceed 2% for some time,” according to the statement.
The Fed also said that it will continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
Finally, the Fed said that it would be prepared to adjust the stance of monetary policy as appropriate “if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
Earlier this month, at a Wall Street Journal panel, Powell addressed the economic lessons learned since the pandemic, as early March represented the anniversary of the two emergency measures the Fed took.
He said the Fed implemented something it learned during the crisis of 2008: “the need to move quickly and powerfully, not wait.” The passing of the CARES Act early on, combined with rates being cut twice, achieved these goals, Powell noted.
When there’s a real crisis, he said, the first lesson is to “attack quickly and don’t hold back,” and second, “don’t stop until the job is done.” During the last crisis, fiscal policy pulled back and became tight, which led to a slow recovery, he added. “We’re committed to using our tools until the job is really done,” he said.
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