Fed Says Stimulus Will Keep Coming Years After the Pandemic
As of last Wednesday, the Federal Reserve did not change the rates and maintain they will keep going with the stimulus plan until the economy “has weathered recent events.”
The majority of policymakers say that the current rate levels will remain low in 2022. The Federal Reserve’s “dot plot” shows that the forecast of the central bank’s policymakers do not foresee a rate increase or any rate hikes for the remainder of 2020 and all of 2021.
“We’re not thinking about raising rates — we’re not even thinking about thinking about raising rates,” Fed Chairman Jerome Powell told reporters during Wednesday’s press conference.
In March the Fed drastically cut rates to near zero because of the COVID-19 pandemic. The Fed has also announced that “it would increase its purchases of Treasury securities and mortgage-backed securities to keep the market functioning smoothly.” The central bank has devoted billions in order to support financial markets, businesses, and state and local governments. The economy reacted favorably to these changes as the stock briefly jumped. Powell believes this might not be enough to get the economy up and running again.
“For now it gives the market what it wanted and needed,” Drew Matus, chief market strategist at MetLife Investment Management.
A big part of the economy that took a major hit during the pandemic is employment. In a statement, the central bank confirmed the “tremendous human and economic hardship” that has been brought on by these hard and uncertain times. Powell stated that millions of American’s will not get their old jobs back and there will be no jobs available to apply for until the economy stabilizes.
The Fed predicts that the unemployment rate will fall to 9.3% which is down from 13.3% in May. By 2020, they predict the unemployment rate will be 5.5% higher than the beginning of 2020. The economic difficulties will also affect the economic predictions for this year. There is a prediction of a 6.5% drop in the gross domestic product which is the most wide-range measure of the economy in 2020.
“The path ahead for the economy is highly uncertain and continues to depend to a significant degree on the path of the pandemic,” Powell said.
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