• Fed stands pat
• Fed signals near-zero rates through 2023 even if recovery quickens
• Fed projected a much shallower contraction in 2020 but revised down 2021 and 2022 growth
• Fed expects inflation to stay below target through 2022
• Unemployment rate forecasts revised lower
• Economic slack to keep inflation and interest rates low
• The Fed needs Congress to act on stimulus

The Federal Reserve kept its pledge to keep interest rates anchored near zero and promised to keep rates there until inflation rises consistently. The Federal Reserve decided to keep short-term interest rates unchanged at 0%-0.25% and indicated they could remain near zero through 2023 - even with better economic growth than officials had previously expected. Additionally, Fed will continue with asset purchases “at least at the current pace”. Also, the committee would be “prepared to adjust the stance of monetary policy as appropriate”.

In its statement, the FOMC said it would keep rates near zero “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment,” the statement says, and inflation is “on track to moderately exceed” the Fed’s target rate of 2% “for some time”.

The central bank also said it would “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace” over coming months. Officials did not specify any specific maturity profile that would be targeted for those upcoming purchases, however.

In addition, officials addressed a new policy regime in which the Fed will allow inflation to run somewhat above the 2% target rate before hiking rates to control inflation. Chairman Jerome Powell said that “these changes clarify our strong commitment over a longer time horizon”.

Source: BIMB Securities Research - 17 Sept 2020