Fed holds interest rates near zero to help US economy

Move reflects central bank’s new long-term policy framework

The Federal Reserve signalled it would hold rates near zero through at least 2023 to help the US economy recover from the coronavirus pandemic.  Photograph: Andrew Harrer/Bloomberg

The Federal Reserve signalled it would hold rates near zero through at least 2023 to help the US economy recover from the coronavirus pandemic. Photograph: Andrew Harrer/Bloomberg

 

The Federal Reserve left interest rates near zero and signalled it would hold them there through at least 2023 to help the US economy recover from the coronavirus pandemic. The Federal Open Market Committee (FOMC) “expects to maintain an accommodative stance of monetary policy” until it achieves inflation averaging 2 per cent over time and longer-term inflation expectations remain anchored at 2 per cent, the central bank said in a statement on Wednesday following a two-day policy meeting.

The statement reflects the central bank’s new long-term policy framework in which officials will allow inflation to overshoot their 2 per cent target after periods of under-performance. That shift was announced by Powell last month at the central bank’s annual Jackson Hole policy conference.

The vote, in the FOMC’s final scheduled meeting before the US presidential election on November 3rd, was 8-2. Dallas Fed president Robert Kaplan dissented, preferring to retain “greater policy rate flexibility”, while Minneapolis Fed president Neel Kashkari dissented in favour of waiting for a rate hike until “core inflation has reached 2 per cent on a sustained basis”. Chair Jerome Powell will hold a press conference at 2.30pm Washington time. Powell and other Fed officials have stressed in recent weeks that the US recovery is highly dependent on the nation’s ability to better control the coronavirus, and that further fiscal stimulus is likely needed to support jobs and incomes. – Bloomberg