June 15, 2020 — Fed Will Keep Interest Rates at Zero for the Foreseeable Future

JUNE 15, 2020 – FED WILL KEEP RATES AT ZERO FOR THE FORESEEABLE FUTURE

The Federal Reserve met last week.  No surprise to anyone, they announced that rates will remain at zero until the economy recovers from the coronavirus.  The FOMC wants to provide support for the economy as long as possible, which is predicted to be at least two years. This includes increasing its bond holdings, by looking to buy $80 billion of Treasuries a month and $40 billion of mortgage-backed securities per month.

The central bank released their economic projections through 2022, and though they are pessimistic for this year, they believe there will be gains over the next two years, both well above the economy’s long- term trend.  The project the US economy will shrink 6.5% in 2020, but grow by 5% in 2021 and 3.5% in 2022.

Their key numbers released last week included the following for 2020, 2021, 2022 and a long-run projection:

Fed Funds Rate: 0%-0.25% through 2022, with the long-run rate at 2.5%

GDP: -6.5% in 2020, 5%, 3.5%, 1.8%

Unemployment: 9.3%, 6.5%, 5.5%, 4.1%.

Headline inflation: 0.8%, 1.6%, 1.7%, 2%.

Core inflation: 1%, 1.5%, 1.7%.

All committee members agree to keep rates steady through 2022.  17 members unanimously held a zero-rate stance through 2021, with only two expecting rates to go up in 2022.  No members indicated negative rates as an option.

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