Markets: Fed plans to keep interest rates close to zero until 2023

The Federal Reserve (Fed) of the United States announced that it plans to keep interest rates close to zero until 2023, the year in which it expects to meet its inflation target of 2%.

The recovery has progressed faster than we expected, but overall economic activity is still well below its levels at the beginning of the year”Said the president of the Fed, Jerome Powell, at the press conference after the two-day meeting of the Federal Open Market Committee (FOMC, in its acronym in English).

In his report, the FOMC stressed that “weaker demand and significantly lower oil prices are holding back consumer price inflation.

Thus, the US central bank kept its promise to leave interest rates close to zero, in the range between 0% and 0.25%, and promised to keep the price of money at that level until inflation rises steadily. .

According Powell, the inflation target of 2% will not be reached until 2023.

However, the head of the Fed explained at the press conference that the central bank will not ignore concerns about financial stability or other risks that could impede the achievement of its monetary policy objectives.

The governors of the Fed They also changed their economic forecasts to reflect a smaller drop in gross domestic product (GDP) and a lower unemployment rate in 2020.

In June, the Fed advanced a contraction of 6.5% of the PBI and an unemployment rate of 9.3% by the end of 2020, but the August employment report, showing a better-than-expected unemployment rate of 8.4%, suggests that the economic recovery may be faster than expected. originally expected.

Thus, the updated forecasts indicate that the Fed now it foresees a 3.7% contraction in GDP and that the unemployment rate will reach 7.6% by the end of the year.

Despite these improved prospects, Powell said that they will not lose sight of the 11 million people who have been left without jobs during the coronavirus.

Even so, the Fed said Wednesday in its statement that the pandemic “will continue to weigh heavily on economic activity”.

The path of the economy will significantly depend on the course of the virus. The current public health crisis will continue to affect economic activity, employment and inflation in the short term, and poses considerable risks to the medium-term economic outlook.”, Underlined the governors of the different districts of the Fed.

In recent months, Federal Reserve It has launched a series of monetary policy tools aimed at keeping markets functioning and the economy afloat, including loan and liquidity programs and interest rates close to 0.

Among other measures, the Fed can buy more bonds, offer more detailed promises to keep credit easy for years to come, or even take more aggressive action if the pandemic worsens and conditions deteriorate.

The Fed, which has a dual mandate of price stability and employment promotion, has traditionally used the movement of interest rates to contain inflationary pressures, trying to balance it at the same time with a strong labor market.

Since U.S left the Great recession From 2008-2009, unemployment fell from 10% in October 2009 to 3.5% last February, without rising labor costs or inflation, which has been contained at around 2%.

But the job market outlook has turned upside down due to the destruction of millions of jobs as a result of the pandemic, which brought the unemployment rate to 14.4% in April.

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