US Federal Reserve keeps interest rates near zero through 2022
The US Federal Reserve has said it will not raise near-zero interest rates until at least 2022, as it predicted a decline in growth.
Along with the rate decisions, central bankers projected a 6.5 per cent fall in GDP this year and a 9.3 per cent unemployment rate by the end of the year.
“The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term and poses considerable risks to the economic outlook over the medium term,” the Fed said in its latest policy statement. It is the first time the central bank has made projections since the pandemic triggered a recession in February and shuttered most of the country.
Last week, employment figures for May showed the unemployment rate had fallen significantly, indicating that the worst of the pandemic is behind the US. The unemployment rate dropped to 13.3 per cent from 14.7 per cent in April, which confused analysts who had predicted it would surge close to 20 per cent.
In its last statement in April, the Federal Reserve said it was “committed to using its full range of tools” to support the US economy. Today’s policy statement repeated this sentiment but also promised to maintain bond purchases at “the current pace” of around $80bn per month in Treasuries and $40bn per month in agency and mortgage-backed securities.
The Fed has been the most active central bank during the pandemic, having slashed interest rates near to zero, unlimited quantitative easing, and emergency lending programmes.
US stocks reacted well to the Fed’s announcement, with the tech-heavy Nasdaq up over one per cent, bringing its year-to-date gain to 12 per cent. The benchmark S&P 500 index gained 0.3 per cent while the Dow Jones edged into positive territory for the first time today.
Naeem Aslam, chief market analyst at Ava Trade, said: “The Fed is determined to maintain adequate liquidity in the system and they are ready to do whatever is required from them. The bottom line is that the market needed a cuddle from the Fed and they have given this.”