JAKARTA (TheInsiderStories) – The central bank of United States, Federal Reserve (Fed), kept the Fed Fund Rate unchanged and signaled that near-zero rates would continue through 2023 to support the next phase of the economic recovery, said the chairman yesterday. The Federal Open Market Committee (FOMC) left its key rate unchanged in the range of zero to 0.25 percent.
According to the chairman, Jerome Powell, the economy is expected to contract by 2.4 percent in 2020. The policymakers also sees the economy to grow by 4.2 percent in 2021 and 3.2 percent in 2022. While, the unemployment rate for the year is estimating at 6.7 percent or down from earlier projection at 7.6 percent, and fall further to 5 percent in 2021 from a previous estimate of 5.5 percent.
The unemployment rate was estimated to improve further, and eventually drop to 3.7 percent in 2023, dropped from an earlier estimation of 4 percent. The pace of inflation is forecast to cool to a rate of 1.4 percent in this year and open to improve at 1.8 percent next year.
“Looking ahead to 2023, inflation is projected to reach 2 percent, though the Fed has reiterated that it would let inflation run above target for some time,” wrote by the statement.
The Fed has relied on its bond-buying purchases to steady the economic fallout, buying US$120 billion bonds on a monthly basis. The bond-buying program has seen the Fed’ balance sheet rise above $7 trillion from about $4 trillion just before the pandemic struck in early March.
Earlier, Powell has signaled, that the Fed to keep the lower interest rate policy for a longer period and avoid the negative rate. The policymakers also shift an inflation goal and changed their views on the trade-off between lower unemployment and higher inflation.
He explained, for the past year and a half, the (FOMC) have been conducting the first-ever public review of the monetary policy framework. Because the economy is always evolving, the committee’ strategy for achieving its goals must adapt to meet the new challenges that arise, he adds.
Powell revealed, by the early 2000s, many central banks around the world had adopted a monetary policy framework known as inflation targeting. The inflation-targeting central banks generally do not focus solely on inflation but with “flexible” inflation targets take into account economic stabilization in addition to their inflation objective.
He ensured that the policymakers always have a diverse range of perspectives on monetary policy, and that is certainly the case today. In addition, the FOMC have not changed their view that a longer-run inflation rate of 2 percent is most consistent with their mandate to promote both maximum employment and price stability.
“Our policy actions continue to depend on the economic outlook as well as the risks to the outlook, including potential risks to the financial system that could impede the attainment of our goals,” he concluded.
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