Fed guarantees its support for the recovery but asks Congress for more stimulus.
Two days after the Americans went to the polls to elect the president and with the result of the elections still in the air, the Fed’s Open Market Committee (FOMC) agreed to keep monetary policy unchanged. Interest rates remain in the range of 0.25% and 0%, a level to which they were lowered in March coinciding with the outbreak of the pandemic and the paralysis of economic activity. As expected, this month’s meeting tiptoed through the market, as all eyes were on the outcome of the elections.
The US central bank reiterated its commitment to continue supporting the economy and, in line with what was argued a week earlier by the president of the ECB, indicated that it is willing to use the full range of tools to boost this difficult time and promote Its maximum employment and price stability. But as its president, Jerome Powell, has repeatedly pointed out, monetary policy alone is not enough. At the press conference, the Fed official urged Congress to increase public spending, a request that comes just at a time when Democrats and Republicans have been unable to reach an agreement to approve the fifth fiscal stimulus package.
“The current public health crisis will continue to weigh on economic activity, employment and inflation,” the committee said in its statement. The members of the institution have confirmed a certain recovery in the economy and employment has continued to recover, but they continue “well below the levels they had at the beginning of the year” before the outbreak of the crisis.
Lower demand and low oil prices have kept prices unchanged. The institution chaired by Jerome Powell has verified an improvement in financial conditions, a direct reflection of the measures put in place to support the economy and promote the granting of loans to companies and families.
The battery of measures implemented by the Fed in the last 10 months have not been limited to lowering rates. As former president Ben Bernanke did in the past financial crisis, Powell has resorted to buying debt to help contain financing costs, a strategy that has been replicated by the ECB. The US Central Bank has agreed to keep monthly asset purchases at $ 120 billion.
In the absence of new projections, the estimates made by the Federal Reserve suggest that zero rates will continue to accompany the market for at least three years. Following what was argued at the September meeting, the price of money will remain unchanged until inflation exceeds 2%. This is due to the change in strategy announced by the institution. At the Jackson Hole meeting, Powell announced that from now on the Fed aims for an average inflation target of 2% in the long term. According to this change, periods of low inflation may be offset by others in which the indicator is above 2% without this resulting in an anticipated rise in interest rates. A strategy that is being studied by its European counterpart.
The analysis firms did not expect great news from this meeting. Juan Ramón Casanovas, head of Private Portfolio Management at Bank Degroof Petercam Spain, assures that “the Fed will continue to apply the same monetary policy whoever is in the White House.” From A&G Private Banking they consider that “the Fed, like the ECB, will wait for the December meeting to apply changes in monetary policy. In the last month of the year, the Fed will have more information on the impact that the second wave of the pandemic could have, electoral uncertainty will have been reduced and the fiscal aid program will have advanced ”.