The most important economic event of the month ended today. The FOMC meeting ended today, and the Federal Reserve published a statement along with a press conference from Fed Chairman Jerome Powell. The clarity regarding the details of the Fed’s updated monetary policy that market participants had been waiting for was answered.
In his opening statement from the press conference immediately after the end of today’s meeting, President Powell said: “Good afternoon, in the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us – maximum employment and price stability. Since the beginning of the pandemic, we have taken strong steps to provide some relief and stability to ensure that the recovery is as strong as possible and to limit lasting damage to the economy. Today, my colleagues in the Federal Open Market Committee and I made some important changes to our policy statement, including updating our guidance on the likely path to our policy rate. ”
The statement released by the Federal Reserve began by saying, “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby advancing its maximum employment and price stability goals.
While the Federal Reserve has done much to convey that they are in it in the long run and will do what is required, it was the release of the “dot plot” from September that gave market participants the greatest possible clarity. As you can see in the chart above, members of the Federal Reserve voted unanimously to keep interest rates close to zero for the rest of 2020 and 2021.
It stated that all eligible members except one voted to keep interest rates where they are throughout 2022. With the exception of four eligible members, the remaining Federal Reserve members voted to maintain interest rates where they are in 2023. In other words, many members of the Federal Reserve do not expect a rise in interest rates until the end of 2023.
In essence, the Federal Reserve made it crystal clear that it will keep its revised monetary policy rate close to zero and expects this action to continue until two events take place. Firstly, that labor market conditions return to “maximum employment”, and secondly only to raise rates when inflation has risen to 2%, and “it is on the verge of moderately exceeding 2% for some time.”
The predictions of the analyzes were completely correct. Bloomberg examined 31 economists, in which they came to the following conclusion; “The Federal Reserve can keep interest rates close to zero for three or more years, and its balance sheet will rise above $ 10 trillion as decision-makers try to revive the US economy from recession.”
The uncertainty of what the current timeline was is no longer uncertain. The Federal Reserve continues its commitment to do whatever it takes to revive the economy and move towards maximum employment, and that will be a long road to recovery.
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