The Federal Reserve (Fed) rates are likely to remain at record lows near zero as the world’s largest economy recovers from the coronavirus pandemic, which has already caused a sharp fall in economic activity and surge in job losses.
At its June 10 meeting the US central bank kept it benchmark interest rate at 0.25% and signalled that it planned to keep it there for some time.
That means it could be years until interest rates rise again around the world.
The Fed’s “dot plot”, which reflects the forecasts of the central bank’s policymakers, isn’t showing any rate hikes this year or in 2021.
Even in 2022, the majority of policymakers believe rates will remain at the current levels.
Along with the rate decision, the central banker projected that the economy will shrink 6.5% in 2020, a year that saw an unprecedented halting of business activity in an effort to combat the coronavirus pandemic.
However, 2021 is expected to show a 5% gain followed by 3.5% in 2022, both well above the economy’s longer-term trend.
Most analysts expect the Fed to pause and assess the economic landscape before embarking on any further actions, which could come at September’s meeting.
The central bank repeated its commitment from the April meeting that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The Fed, according to CNBC, also said it will continue to increase its bond holdings, targeting Treasury purchases at $80bn a month and mortgage-backed securities at $40bn.
In early march, the Fed slashed the target range for its overnight funds rate to 0-0.25%, where it last was during the financial crisis. The rate serves as a benchmark for short-term bank borrowing and also as a guide for most consumer borrowing.
The central bank acknowledged the “tremendous human and economic hardship” that the coronavirus pandemic has brought upon people around the world, noted CNN Business. By December, the Fed expects the unemployment rate to fall to 9.3%, down from 13.3% in May, but still substantially above the 3.5% rate from February - a near 50-year low, the network said.
Millions of people in the world’s largest economy won’t get their old jobs back, “and there may not be a job for them for some time,” said Fed Chairman Jerome Powell.
Even by end-2022, the unemployment rate is still projected to be 5.5%, far higher than at the start of this year.
Powell reiterated that some demographic groups, notably women, black and Hispanic workers, are bearing the brunt of the unemployment crisis.
Analysts say Powell was trying to drive home the message that the economy remains in need of extraordinary help despite recent despite glimmers of a possible recovery, including a government report that employers surprisingly added jobs in May.
By keeping its rate ultra-low for more than two more years, Fed makes it easier for consumers and businesses to borrow and spend enough to sustain an economy depressed by business shutdowns and high unemployment.
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