Interest rate decision Fed snowed under
Because of the presidential elections, the two-day policy meeting of the US central bank began on Wednesday instead of the usual Tuesday. Monetary policy was left unchanged as expected, partly because of this same ballot.
Economic activity and employment continue to recover but remain significantly lower than before the outbreak of the corona crisis. The Central Bank reiterated that it has and will use all means at its disposal to continue to support the US economy in these challenging times. Currently, the Fed is buying up USD 120 billion worth of government and mortgage-backed loans on a monthly basis. The buy-back programme will remain at least at its current level and the central bank will have further resources at its disposal if needed. Fed-watchers suspect that any adjustment of the buy-back programme has been discussed but not decided upon. Indeed, the decision not to adjust monetary policy now was taken unanimously by policymakers. The current buy-back programme ensures support for economic activity and stability in the financial markets.
Fed president Jerome Powell reported that the pace of economic recovery is slowing down and the outlook is rather uncertain. He is concerned about developments in the number of corona infections. It is extremely important for the economy to get the virus under control.
The Fed’s monetary policy remains loose until maximum employment is reached and inflation is set to rise to 2% in the long term. Finally, Powell called for additional budgetary support from Washington to further stimulate economic recovery.
The Fed’s interest rate decision received less attention than usual. All eyes are, of course, on the election race between Joe Biden and Donald Trump. As it looks now, Joe Biden will be the new president and the US Congress will remain divided.