The US Federal Reserve has kept its benchmark interest rate unchanged at the record-low level of near zero and hinted towards maintaining it until at least 2023, noting that the path of the economy will depend significantly on the Covid-19 situation.
After the conclusion of a two-day policy meeting, the Federal Open Market Committee (FOMC) on Wednesday, the Fed’s policy setting body, decided to keep the target range for the federal funds rate at 0 to 0.25 per cent, a level that hasn’t been changed since March, reports Xinhua news agency.
The committee expects it will be appropriate to maintain this target range “until the labour market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for some time”, according to the FOMC.
The policy meeting was the first since the central bank in late August adopted a new monetary policy framework, which seeks to achieve inflation that averages 2 per cent over time.
Under the new framework, the Fed said, following periods when inflation has been running below 2 per cent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 per cent for some time.
When asked to explain the specifics about inflation overshooting, Fed Chairman Jerome Powell said at a virtual news conference Wednesday afternoon that “we’re resisting the urge to try to create some sort of a rule or a formula here”.
Powell said the economic recovery has progressed more quickly than generally expected, but overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain.
The central bank chief noted roughly half of the 22 million jobs that were lost in March and April have been regained as many people returned to work, and unemployment rate remained elevated at 8.4 per cent as of August.
He added that the level of unemployment is probably 3 per cent higher than the official data, considering those people who are misidentified as employed and the declined labour force participation.
Looking ahead, the FOMC projected the unemployment rates to continue to decline, according to the latest economic projections. The median projection for unemployment rate is 7.6 per cent at the end of this year, and 4 per cent by the end of 2023.
It’s still above the historically low of 3.5 per cent the country experienced before the Covid-19 pandemic.
Inflation, meanwhile, is expected to reach 1.2 per cent by the end of this year, and will gradually pick up before reaching 2 per cent by the end of 2023, the median projection showed.