Fed pledges to keep rates low until it achieves maximum employment

Daniel Fowler
September 18, 2020

Or, as the central bank's policy-setting Federal Open Market Committee said in the dry language of its statement after the end of its two-day meeting, "The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals". The unemployment rate has fallen steadily since the spring but is still 8.4%.

The Fed's statement says that because inflation has mostly fallen below its target of two per cent in recent years, Fed policymakers now "will aim to achieve inflation moderately above two per cent for some time".

The Bank of England on Thursday left interest rates unchanged and maintained its current level of asset purchases, but warned that the outlook for the economy remains "unusually uncertain".

"That the Fed failed to dovishly surprise encouraged a mild dollar consolidation, but we are not yet headed toward a material dollar correction", said Jeremy Stretch, head of G-10 currency research at Canadian Imperial Bank of Commerce in London.

The Fed doesn't see core PCE inflation hitting 2% until the end of 2023.

"A full economic recovery is unlikely until people are confident that it is safe to re-engage in a wide variety of activities", Powell said.

On Wall Street, the Dow Jones Industrial Average fell 0.16%, the S&P 500 lost 0.51% and the Nasdaq Composite dropped 0.98%. The Fed was "long on talk and short on action".

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The company, however, will test the product with select Facebook employees and contractors in the United States in September. As Facebook points out, "Project Aria was designed as a way to help us innovate safely and responsibly".

"A better economy and a dovish Fed, that is a nice combo", said Ryan Detrick, chief market strategist for LPL Financial.

The Federal Reserve once again went to great lengths to explain the debilitating impact of the pandemic on the economy in its September FOMC meeting. The Fed held its rate that low for seven years during and after the 2008-2009 recession.

"We're looking at a scenario where the next rate hike in the United States could be in 2024", said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets in Toronto. In its assessment of the economy, the Fed noted that activity and employment have picked up in recent months, but they are still well below their levels at the beginning of the year. The governor has said that the policy rate will stay at 0.25% until next March.

The Fed also said that weak demand and significantly lower oil prices continue to put pressure on consumer price inflation.

USA investors are counting on Congress for a new support package after additional unemployment benefits that help to support consumer spending expired, but legislators are deadlocked on its possible size.

"My sense is that more fiscal support is likely to be needed", Powell said. Its balance sheet stood at approximately $4.29 trillion in the first week of March. This more than $2 trillion economic relief package aims to protect the USA economy from the after-effects of the coronavirus crisis.

Meanwhile, as per the latest global fund managers survey by Bank of America, the USA election is the third biggest tail risk for equities. The figure suggests that the end of the extra $600 in unemployment benefits weighed on spending.

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