The Fed will keep interest rates close to zero, here’s why. Wsj report
What the Wall Street Journal wrote about the Fed
Federal Reserve officials will likely recognize the recent signs of economic weakening, and will stick to a wait policy, choosing to wait and see if business resumes. The Fed set short-term interest rates close to zero, launched a $ 120 billion-a-month bond purchase program, and said it would keep stimulative measures until its unemployment targets lower. and inflation at 2% will be achieved – writes the WSJ.
Last month came to a halt, as the virus reappeared and many states resumed business shutdowns in response. Employment and retail sales fell in December, and the number of Americans filing new jobless claims has been on the rise since November.
However, Fed officials said they believe the setback is temporary.
They think the economy will recover later this year as vaccines are more widely distributed and begin to bring the deadly coronavirus pandemic under control. This, according to their estimate, would allow restaurants, hotels, airlines and other businesses to start returning to full capacity.
Fully rebuilding the economy, after the permanent loss of many businesses and jobs, will take more time, officials said.
"The economy is far from our targets," Fed Chairman Jerome Powell said earlier this month at a Princeton University forum. Now is not the time to withdraw from his policies, he added.
Congress and the White House in December approved $ 900 billion in new spending measures to address the pandemic and its economic effects, including sending $ 600 checks to many Americans. The money could inflate household savings and lead to additional consumer spending.
The Biden administration has proposed $ 1.9 trillion in additional measures, including sending $ 1,400 checks to many families.
Fed officials are actually waiting and watching to see the effects of these measures and whether their projections for the economy prove correct.
The Fed estimates that US economic output will grow 4.2% in 2021 and the unemployment rate will drop to 5% by the end of the year from 6.7% in December. He sees the unemployment rate drop further to 4.2% by the end of 2022.
"The Federal Reserve is committed to using its full range of tools to support the US economy during this difficult time, thereby promoting its goals of maximum employment and price stability," he said in a policy statement after the December meeting. .
Rates will remain low and its bond purchases will continue until its targets are met, he added. Bond purchases aim to keep long-term interest rates low in combination with the short-term interest rate, which he has set close to zero.
Low rates are designed to encourage lending, spending and investment, while stimulating general economic activity. The effects are already being felt in some sectors that are particularly sensitive to loan costs, such as housing. House prices in large metropolitan areas rose 9.5% from a year earlier in November, according to the S&P CoreLogic Case-Shiller National House Price Index. Home sales in the United States in 2020 rose to the highest level in the last 14 years.
The loan rate on a 30-year fixed-rate mortgage is around 2.75%, down from 3.6% a year ago, according to Freddie Mac, a large government-backed mortgage company.
Fed officials also expect inflation to pick up in the coming months, though they are not convinced it will be lasting. Consumer price inflation has averaged nearly half a percentage point below the Fed's 2% target since setting that target in 2012.
(Extract from the press review of Eprcomunicazione )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/fed-tassi-interesse/ on Sun, 31 Jan 2021 07:00:28 +0000.