The Federal Reserve kept interest rates near zero, signaling it would keep them there until at least 2023 to help the U.S. economy recover from the coronavirus pandemic.
The Federal Open Market Committee "expects monetary policy to be accommodative" until it hits an average inflation rate of 2% over time and longer-term inflation expectations stay well anchored at 2%, the central bank said in a statement on Wednesday after two-day policy Meeting.
The statement reflects the central bank's new long-term policy framework in which officials allow inflation to exceed its 2% target after periods of poor performance. The shift was announced by Powell last month at the central bank's annual Jackson Hole Policy Conference.
After the release of the statement, government bonds have changed little. The 10-year rate of return was constant at around 0.68%. Shares rose slightly.
The vote in the last scheduled meeting of the FOMC before the US presidential election on November 3rd was 8-2. Robert Kaplan, president of the US Federal Reserve in Dallas, disagreed, preferring to maintain "more flexibility in policy rates" while Neel Kashkari, president of the US Federal Reserve in Minneapolis, refused to wait for a rate hike until "the Core inflation has sustained at 2% ".
Powell and other Fed officials have stressed over the past few weeks that the US recovery depends to a large extent on the country's ability to better control the coronavirus and that more fiscal stimulus is likely to be needed to support jobs and incomes.
The Fed committed on Wednesday to using all of its tools to support the economic recovery. The central bank reiterated that it would continue to buy government bonds and mortgage-backed securities, "at least at the current rate, in order to keep the market running smoothly." In a separate statement on Wednesday, those amounts were set at $ 80 billion per month in government bonds and $ 40 billion in mortgage-backed securities.
According to the median projection of their quarterly projections, officials see rates remain extremely low through 2023, although four officials have planned at least one increase in 2023.
In other updates to quarterly forecasts, Fed officials see a smaller economic decline this year than before, but a slower recovery in the years to come.
In addition to lowering borrowing costs in March, the central bank pumped trillions of dollars into the financial system through bond purchases and set up a number of emergency credit facilities to keep businesses alive. The economy has partially rebounded from its worst downturn and some sectors like housing are doing well, but COVID-19 continues to kill thousands of Americans each week, unemployment remains high, and industries like hospitality and travel are depressed.
In addition, the temporary additional unemployment benefits are running out and the political stalemate due to a new economic cycle threatens to push back the economy. Uncertainty could linger over government policy, at least until the outcome of the presidential and congressional elections is clear. Republicans like President Donald Trump, who has been tracking challenger Joe Biden in national polls, have proposed a smaller aid package than Democrats.