The Federal Reserve announced its intention to keep the target range for the federal funds policy rate between 0% and 0.25% over the next three years. The Open Market Committee confirmed this in an all out effort to help a burdened—yet recovering—U.S. economy from COVID-19. 13 of 17 Fed officials strongly predict that rates will remain at virtually zero until 2023.
“The Fed also provided strong forward guidance, promising to keep its policy rate at virtually zero until economic expansion is well underway. In a released statement the Fed said it expects to maintain this target range until the U.S. achieves maximum employment and ‘inflation has risen to 2% and is on track to moderately exceed 2% for some time.’”
Households and businesses will continue to see the same influx of credits as the FED also confirmed it will increase its holdings of Treasury securities and agency mortgage-backed securities at the current rate.
Policymakers within the Federal Reserve have been relying on critical data in order to project forecasts on the state of the economy in the years to come. Their Summary of Economic Projections indicated “less severe economic contraction this year as well as downward revisions to the unemployment rate forecasts for the next few years.”
Federal Reserve Chair, Jerome H. Powell, remained on the side of direct economic aid for the people, urging Congress to think about another stimulus package such as the one many Americans received this past Spring. The Federal Reserve can really only provide loans to solvent entities. Powell referred to the monetary aid as essential because it boosts consumer spending and business activity.
We have seen the mass exodus of residents from New York City; The most congested city in the nation faced a record number of vacancies. And Powell feels that more metropolitans can start to see the same if there isn’t more direct aid in the form of a second stimulus package. Powell noted that evictions may also skyrocket, but, with the recent nation-wide eviction moratorium we know this won’t happen.
What will happen is that people will simply leave the concrete jungle on their own accord for more suburban areas that allow for better social distancing—Or move in with a financial anchor to work remotely and save a few bucks.
“The Fed’s commitment to keep its target rates at zero for several years should support valuations, encourage job and household creation and build confidence in sustained economic recovery.”