Federal Reserve Maintains Interest Rate in Latest Policy Meeting

September 17, 2020
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The United States Federal Reserve has kept its benchmark interest rate at zero percent after its policy meeting this week.

Chairman Jerome Powell said in a statement yesterday that the economy is recovering at a better rate than expected, but the job market remains uncertain with a current unemployment rate of 8.4%.

Powell said that policymakers “welcome this progress” but that the Fed would “not lose sight of the millions of Americans that remain out of work.”

Interest Rates to Remain Low Until 2023

The current Federal Funds Rate is set at a target of 0.00 to 0.25 percent. It has remained in this range since March when the Coronavirus Pandemic first threatened the U.S. economy.

This rate is used to determine borrowing costs for a range of commercial finance services, including credit card accounts, home mortgages, and business loans. The Fed is optimistic that a low rate will stimulate borrowing, which should increase spending in the economy.

Inflation remains relatively low at 2%, and the Fed believes that it will remain close to this figure until at least 2023. The Federal Funds Rate is likely to remain low for the same period, with policymakers expecting a zero percent interest rate until the end of 2023. Unemployment is expected to fall to 4% before then.

The Federal Reserve goal of maximum employment has been described as “broad” and “inclusive”. In the past, the central bank has been accused of raising interest rates even while minority demographics struggled to find work. Powell said in a statement that prosperity needs to be “very broadly spread in the longer run.”

Powell Wants Congress to Spend More

While lawmakers are yet to agree on a second Coronavirus Pandemic relief package, Jerome Powell has urged lawmakers to spend more.

Speaking to the media, Powell told reporters that “My sense is that more fiscal support is likely to be needed.”

If Congress can introduce more meaningful relief measures for households, it could boost consumer spending. Retail sales increased by just 0.6% in August according to the Commerce Department.

How Did Markets Respond to the Federal Reserve Announcement?

Stocks were down slightly at the close of trading on Wednesday. The Fed’s promise to keep interest rates low will inspire confidence, but investors are also aware that a low target interest rate leaves very little financial ammunition at the Federal Reserve disposal.

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