The Fed won’t raise interest rates until 2022 and vows to continue supporting the economy.
The Federal Reserve Committee on Open Markets (FOMC, for its acronym in English) has announced that it will not raise interest rates – set at the target of between 0% and 0.25% – until 2022. In this sense, the central bank has stressed that it is « committed »to using the full range of tools available to them to support the United States economy with the goal of achieving price stability and full employment.
Likewise, the Fed has added that it will continue buying assets for as long as it considers necessary to support the proper functioning of the market and to promote the transmission of its monetary policy.
“The Fed will emphasize that all the actions it has launched – unlimited bond purchases, rate cuts, etc. – will continue until the economy recovers and inflation returns to its level,” predicted the expert. Nicolás López, director of analysis of MG Valores before the meeting.
On the other hand, the Fed has also published the update of its macroeconomic forecasts, as well as the projections of its members on the evolution of interest rates. Due to the Covid-19 crisis, the monetary authority did not publish this document since December.
The ‘dot-plot’, or dot diagram, has been modified from the last meeting. In this way, now all of its members consider that the types are They will remain at their current level until at least 2022. And only two members consider that in that year they will be at some point above 0%.
The central projection of the issuing institute indicates that interest rates will be between 0.1% in 2020, compared to the previous range of between 1.6% and 1.9%. For 2021, the fork’s highest range has also been lowered, from 2.1% to 0.1%.
GDP will drop 6.5% in 2020
As for macroeconomic developments, the Fed has broadly downgraded its outlook. Thus, it considers that the United States GDP will collapse a 6.5% in 2020, compared to the forecast to grow 2% in December. However, by 2021 central bankers expect the economy to rebound 5%.
With respect to unemploymentThe Fed estimates that the country will end the year with an unemployment rate of 9.3%, compared to 3.5% estimated in December. In 2021, unemployment will still remain at 6.5%.
The American job market generated 2.5 million non-farm jobs during the past month of May, while the unemployment rate fell to 13.3%, after the country recorded its worst historical reading in April, according to data from the country’s labor statistics office of the Department of Labor.
The economy experienced an annualized contraction of 5% in the first quarter, compared to the 2.1% growth observed during the previous quarter, according to the second estimate of the data published by the Government’s Office of Economic Analysis.
On his side, the personal consumption expenditure price index, the variable preferred by the Fed to monitor inflation, was last April, the latest available data, at 0.5% compared to the same month last year. The monthly rate in the fourth month of the year was -0.5%, three tenths less than in March.
The underlying variable, which excludes energy and food prices from its calculation due to its greater volatility, stood at -0.4%, four tenths less, while the annual rate rose 1%, seven tenths less than the previous month.