Fed: interest rate remains close to 0 percent until 2022
Interest rates are likely to remain low until 2022. That’s what Federal Reserve Chairman Jerome Powell said Wednesday after a policy committee meeting. Interest rates will remain close to zero to help the economy recover, he said.
He also announced that the Fed will continue to buy bonds for the time being. As a result of that policy, the Federal Reserve balance sheet could rise to $9,000 billion by the end of 2020, macroeconomists expect.
The corona crisis and the lockdown have hit the United States in the middle. The Fed estimates that the US economy will shrink by 6.5% this year, while unemployment will average 9.3%.
At the same time, economic growth is expected to reach 5 percent in 2021. Investors expect this growth to be accompanied by sharply higher corporate profits year-on-year.
Powell admitted that the situation is still very uncertain at the moment. He acknowledged that the latest labour market figures for May were surprisingly positive, but warned that the road to recovery will be long.
The Fed Chairman’s comment was not equally well-received in all markets. The Nasdaq technology fair even went through 10,000 points, while the S&P and Dow Jones index fell slightly. Since its low point on 23 March, the S&P has risen by more than 35 percent but is still below February’s level.
Ten-year treasuries lost 2.7 basis points to 0.802 percent. The two-year interest rate dropped 1.3 basis points to 0.193 percent.
Powell’s key statements were: ‘Didn’t change longer-run growth rate as we think lasting economic damage can be avoided’, There have been gains in market function due to the Fed’s actions, although not back to February levels’, and ‘The Fed is now in the final run-up to launching Main Street lending program’.
President Trump responded by saying that the Federal Reserve had a good meeting today and that ‘jobs are going great’, In May, contrary to expectations, the number of jobs in the United States increased by 2.5 million.