September 21, 2020 — FOMC Meets; Interest Rates Flat Through 2023


The Fed has decided to keep monetary policy loose for the immediate future. Their new approach is not concerned inflation will surge. Over the last few years, inflation has not reached the targeted 2 percent, and annualized, in July, it was 1 percent. The FOMC’s views are reasonable, as new economic data is showing the rebound is losing momentum. 

860,000 workers filed unemployment claims in the last period, but claims remain below 1 million for the third straight week, which is encouraging.  Housing starts fell sharply last month, so a hot housing market may be cooling despite historically low interest rates. 

Last Wednesday, at the FOMC September meeting, the Fed signaled that near-zero interest rates would remain for the next 3 years as the US economy continues to face risks around the ongoing pandemic.  The Fed upgraded economic projections for this year, and now anticipate a shallower decline in real GDP, and a lower unemployment rate by the end of the year versus their early summer projections.  But they suggested the quicker than expected recovery could be derailed if there is no more fiscal stimulus.  “The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses and communities across the country.  Even so, the current economic downturn is the most severe in our lifetimes,” said Jerome Powell.  “It will take time to get back to the levels of economic activity and employment that prevailed at the beginning of this year, and it may take continued support from both monetary and fiscal policy the achieve that.”

Friday after the FOMC meeting, St. Louis Fed Chair James Bullard addressed inflation concerns. He says higher inflation is coming, but not enough to be worrisome. He thinks the US economy will grow 30 percent in Q3, and the unemployment rate will fall from the current 8.4 percent, to 6.5 percent by year end.