The Fed says it will keep the stimulus going for years
This means that it could take years until interest rates rise again. The Fed’s “point plot,” which reflects central bank policymakers ’forecasts, shows no increase in rates this or 2021. Even in 2022, most policymakers believe that rates will remain at current rate rates.
“We’re not thinking about raising rates – we’re not even thinking about raising rates,” Fed President Jerome Powell told reporters at a news conference Wednesday.
The market seemed pleased with the central bank’s update, and stocks jumped sharply. Lower interest rates allow companies to borrow at lower rates, which is good for stocks.
The Fed also said it would increase purchases of government securities and mortgage-backed securities to keep the market running smoothly.
“For now, it’s giving the market what it wanted and needed,” says Drew Matus, chief market strategist at MetLife Investment Management.
The Fed cut interest rates to almost zero in March at the start of the coronavirus pandemic. Since then, the central bank has set aside billions of dollars to support financial markets, companies, and state and local governments.
But the central bank, like the federal government, may have to do more to get the economy back on its feet, Powell reiterated at a news conference Wednesday.
Unemployment crisis
One of the Fed’s main goals is to foster economic conditions that achieve stable prices and maximum sustainable employment.
Millions of people won’t get their old jobs, “and maybe won’t find them for a while,” Powell said during a news conference.
Even by the end of 2022, the unemployment rate is projected to be 5.5%, which is significantly higher than at the beginning of this year.
The Fed does not expect economic difficulties to stop any time soon: it has updated its economic projections for the year predicting a 6.5% drop in gross domestic product, the broadest measure of the economy in 2020.
But Powell dismissed comparisons to the Great Depression, telling reporters he didn’t think it was “a good example or likely outcome for a model of what’s going on here at all, I really don’t know.”
“The road ahead for the economy is very uncertain and continues to depend heavily on the path of the pandemic,” Powell said.
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