Fed Keeps Rates Near Zero, Continues Vow to Use All its Tools
Today’s FOMC meeting was never going to be a barnburner and it lived up (or is that down?) to those limited expectations. The Fed left the fed funds rate unchanged today (0.00%-0.25%) and did not tweak the Interest on Excess Reserves (still at 0.10%). And being a non-quarter-end meeting there wasn’t an update to the economic or rate forecasts. What was presented was continued concern for the health of the nation and by consequence the economic recovery. The Fed is keeping rates at zero, which they forecast to last through 2022 at the June meeting, and unlimited quantitative easing remains in place. The post-meeting press conference may yield some information about other measures yet to be deployed like forward guidance and yield curve caps, but those policies, even if mentioned today, are probably fourth quarter tools to be deployed if the economic rebound between now and then falters. In summary, the statement held little in the way of surprises, the Fed will continue to support the economy through the pandemic and also with waning fiscal stimulus.
Today’s statement is similar to one’s we’ve seen since April with almost all of it focused on the impact of the virus both past and future. This sentence in the statement summarizes the concerns: “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.” Also, this sentence was added: “The path of the economy will depend significantly on the course of the virus.” And if they felt they didn’t stress it enough they kept this line from earlier statements, “The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health…” The full text of the statement follows:
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy will depend significantly on the course of the virus. 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. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.
The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.
Thomas R. Fitzgerald
Director, Strategy & Research
400 Interstate North Parkway
Atlanta, GA 30339