This means that it may take years for interest rates to rise again. The Fed’s “raster plot”, which reflects the expectations of policymakers at the central bank, does not show any interest rate hikes this year or in 2021. Even in 2022, most policymakers believe that interest rates will remain at current price levels.
“We are not thinking of raising interest rates – we are not even thinking of thinking about raising interest rates,” Federal Reserve Chairman Jerome Powell told reporters at a news conference on Wednesday.
The market seemed happy with the central bank’s update, and stocks jumped briefly. Low interest rates allow companies to borrow at lower rates, which is good for the stock market.
The Fed also said it would increase purchases of Treasury securities and mortgage-backed securities to keep the market running smoothly.
“At the moment, it is giving the market what it wants and needs,” said Drew Matus, chief market strategist at MetLife Investment Management.
The Federal Reserve cut interest rates to almost zero in March at the start of the coronavirus pandemic. Since then, the central bank has committed billions of dollars to support financial markets, companies, state and local governments.
But Powell repeated at a news conference on Wednesday that the central bank, as well as the federal government, may have to do more to get the economy back.
The unemployment crisis
One of the primary goals of the Federal Reserve is to foster economic conditions that achieve stable prices and maximize sustainable employment.
Powell said during the press conference that millions of people will not restore their old jobs, “and there may not be a job for them for some time.”
Until the end of 2022, the unemployment rate is still expected to reach 5.5%, which is much higher than it was at the beginning of this year.
The Fed does not expect economic hardships to stop anytime soon: It has updated its economic forecasts for this year, forecasting a 6.5% drop in GDP, the broadest measure of the economy, in 2020.
But Powell rejected the comparisons of the Great Depression, and told reporters he did not think this was “a good example or a possible outcome of a model of what is going on here at all, I really don’t.”
“The road ahead to the economy is very uncertain and is still largely dependent on the course of the epidemic,” Powell said.