Fed not even thinking about raising rates
The Federal Open Market Committee (FOMC) meeting concluded today with no significant surprises. The overall tone of the statement and press conference was relatively somber, helped along by the resumption of the publication of a Summary of Economic Projections, which the Federal Reserve last released in December. It paints a picture of an economy expected to improve slowly, with a policy rate near zero a necessary tool to reach a full recovery. The Fed’s median projection for GDP reflects a decline of 6.5% for 2020, followed by increases of 5% in 2021 and 3.5% in 2022. The forecast for unemployment is for a decline to 9.3% by the end of 2020, 6.5% by year-end 2021 and 5.5% by the end 2022. For frame of reference, the unemployment rate stood at 3.5% heading into the global pandemic.
All 17 FOMC participants project the fed funds target range to remain at 0-0.25% through the end of 2021, with only two looking for higher rates in 2022. During the press conference, Chair Jerome Powell noted considerable uncertainty remained about the outlook and for the Fed’s ability to raise inflation, with the median inflation projections reaching only 1.7% by the end of 2022. He noted the positive surprise of the May employment report and hoped for many more like it on the long road to recovery from what he described as the biggest economic shock in history.
The Fed continues to evaluate the need for additional action, including the adoption of more formal forward guidance and yield-curve control. But it did commit to continuing to buy Treasury and agency mortgage-backed securities at least “at the current pace in order to sustain smooth market functioning.”