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US Fed says it will keep rates low until maximum job goal hit

US Fed says it will keep rates low until maximum job goal hit

AFP
Washington
The Federal Reserve pledged Wednesday to keep interest rates low until it has achieved its goal of maximum employment, but new forecasts show central bankers expect rates will stay at zero at least through 2023.
The statement reaffirmed the policy shift that Fed Chair Jerome Powell announced last month, indicating the central bank will keep pumping the gas with low rates and allow inflation to push beyond 2 percent in order to spur job gains as the world’s largest Economy recovers from the Covid-19 pandemic.
The policy-setting Federal Open Market Committee “seeks to achieve maximum employment” and “will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.”
“The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the statement said.
However, two committee members dissented in the vote, with one objecting to the lack of flexibility in the policy statement and the other pushing for even an stronger commitment to waiting until inflation has reach 2 percent on a “sustained basis” before raising rates.
Along with its policy statement, the Fed released forecasts from FOMC members showing they do not expect the benchmark lending rate to move above zero through the end of 2023, at least.
One member looks for a rate hike in 2022, and four expect an increase in 2023, but the median forecast of 17 members has the rate holding near zero. The committee’s GDP forecasts reflect the better-than-expected recovery in the United States, and they now see the Economy contracting by 3.7 percent this year, compared to 6.5 percent in June. However, growth expectations for 2021 and 2022 were comparatively modest.
Unemployment has fallen to 8.4 percent from its peak of 14.7 percent in April amid the most stringent pandemic business shutdowns, and the FOMC members’ median forecast is for the jobless rate to end the year at 7.6 percent and drop to 5.5 percent by the end of next year.
Armed with a new interest rate strategy, the Federal Reserve was expected to seek to reassure the US economy rattled by the coronavirus downturn as it wrapped up its policy meeting on Wednesday.
The central bankers opened the final day of their two-day policy meeting to news that retail sales slowed in August, adding to the argument that the world’s largest economy needs more support, which Fed chair Jerome Powell has been encouraging in increasingly urgent statements.
The meeting concludes amid renewed optimism that the White House and Democratic leaders in Congress will compromise on a new spending package following a historic collapse in GDP in the second quarter and data showing a worryingly high rate of new layoffs.
The United States is home to the world’s worst coronavirus outbreak with more than 194,000 deaths, and in the pandemic’s opening days the Fed slashed its benchmark lending rate to near-zero and rolled out trillions of dollars in liquidity lines to keep markets functioning.
Powell has pledged to do more if needed, but the Fed’s options are limited since it can only “lend not spend.”
As the meeting got underway on Tuesday, Nancy Pelosi, speaker of the Democrat-led House of Representative, announced a new attempt to break weeks of deadlock with the White House on additional aid for the beleaguered economy.
“We are committed to staying here until we have an agreement,” she said on CNBC.
White House chief of staff Mark Meadows responded Wednesday saying he was “encouraged” by the renewed impetus towards a deal.
“I’m probably more optimistic about the potential for a deal in the last 72 hours than I have been in the last 72 days,” he said on CNBC early Wednesday.
“The president has encouraged us that if they’re really wanting a deal that he’s willing to make a deal.”
That message was quickly undermined by President Donald Trump, who renewed his attacks on Democrats while cheering a CNBC personality who called Pelosi “Crazy Nancy” in a live broadcast.
The policy-setting Federal Open Market Committee (FOMC) resumed deliberations just after the Commerce Department released its latest report showing that retail sales rose 0.6 percent in August compared to the prior month -- lower than economists had projected -- while July retail sales were revised lower.
Online sales flatlined while auto sales struggled, but US restaurants and bars saw business surge as more were able to reopen. Despite the generally rising trend, analysts worry the recovery cannot be sustained without more help from Congress to stimulate the economy.

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