In its statement, the Fed said it would
maintain rates near zero “until labor market conditions have reached
levels consistent with the committee’s assessments of maximum employment
and inflation has risen to 2% and is on track to moderately exceed 2%
for some time.”
The policy meeting is the first for the Fed since it announced
a significant policy shift in its approach to inflation and in how it
will consider other economic metrics. Practically speaking, the shift
indicates the Fed moving forward will be less inclined to increase
interest rates when the unemployment rate falls, as long as inflation
isn’t on the rise.
In addition, at its most recent meeting FOMC
officials also issued a new forecast for a faster-than-expected decline
in the unemployment rate in mid-2020, with the Federal Reserve not
projecting unemployment will average around 7% to 8% during the final
quarter of 2020, a reduction from June’s projections of around 9% to
10%.
Fed officials indicated in their statement they remain
relatively concerned the reopening of the economy is going to reveal
deeper issues, and that many employees in hard-hit economic sectors are
likely in for long unemployment.
The Fed said rates will remain
low because it does not see inflation returning to the long-time goal of
2% until the end of 2023, at the earliest.
With inflation running
persistently below the Fed’s 2% goal in recent years, the Fed said
Wednesday it would “aim to achieve inflation moderately above 2% for
some time so that inflation averages 2% over time” and so that
longer-run expectations of future inflation remain anchored at that
level, the statement said.
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