Fed Aims to Keep Interest Rates at Near Zero to Help a Pandemic-Battered US Economy
As the United States attempts to recover from challenges brought about by the coronavirus pandemic, the Federal Reserve said today that it does not plan to raise interest rates in the near future.
In new projections released Wednesday, all 17 members of the central bank’s policymaking Federal Open Market Committee announced that they expected to keep interest rates at zero to 0.25% at least through the next year, while 13 of them suggested that those rates would stay there through 2023.
The Fed indicated that it would not hike rates until inflation has grown to 2% and is on track to “moderately exceed 2% for some time.” It will also consider whether the country’s labor market has “reached levels consistent with the committee’s assessments of maximum employment.”
What’s more, the bank pledged to buy more Treasury securities and mortgage-backed securities over the next several months to support the markets plus help ensure the smooth flow of credit to businesses and households.
“The path of the economy will depend significantly on the course of the virus,” read a statement from the Fed. “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 decision comes less than two weeks after the Bureau of Labor Statistics noted that American employers added nearly 1.4 million jobs in August, pushing down the unemployment rate to 8.4%. It was a welcome departure from the 14.7% high logged in April, when large swaths of the country went into lockdown to help contain the spread of the outbreak; however, it is still significantly higher than pre-pandemic levels, which typically hovered in the mid-3% range.
The Fed began rolling out emergency lending programs in March, when the COVID-19 health crisis took hold in the U.S. and led to widespread market disruption. Concerns over liquidity drove the agency to install a variety of facilities to dole out credit to households, companies and local governments that were struggling to stay afloat. The moves were an acknowledgment that the U.S. economy could be months — or even years, experts say — from recovery.
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