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US Fed sees interest rates staying near zero through 2022, GDP bouncing to 5% next year

US Fed sees interest rates staying near zero through 2022, GDP bouncing to 5% next year

US Fed sees interest rates staying near zero through 2022, GDP bouncing to 5% next year
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By CNBC Jun 10, 2020 11:54:56 PM IST (Updated)

The Federal Reserve kept interest rates near zero and indicated that’s where they’ll stay as the economy recovers from the coronavirus pandemic.

The Federal Reserve kept interest rates near zero and indicated that’s where they’ll stay as the economy recovers from the coronavirus pandemic.

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Along with the rate decision, central bankers projected Wednesday that the economy will shrink 6.5% in 2020, a year that saw an unprecedented halting of business activity in an effort to combat the coronavirus pandemic. However, 2021 is expected to show a 5% gain followed by 3.5% in 2022.
The central bank repeated its commitment from the April meeting that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The Fed also said it will continue to increase its bond holdings, targeting Treasury purchases at $80 billion a month and mortgage-backed securities at $40 billion.
The Federal Open Market Committee met this week as states begin to reopen and after unemployment saw its worst monthly drop in history followed by its biggest gain. In addition, the meeting comes the same week the National Bureau of Economic Research declared that a recession started in February, ending the longest expansion in U.S. history.
Fed officials skipped releasing their quarterly economic projections at March meetings as uncertainty permeated over how long the U.S. would remain in stay-at-home mode and how deep the damage would be.
They did release their forecasts this week. Here are the key numbers for 2020, followed by the next two years and the long-run projection:
Fed funds rate: 0%-0.25% through 2022, with the long-run rate at 2.5%
GDP: -6.5% in 2020, 5%, 3.5%, 1.8%
Unemployment: 9.3%, 6.5%, 5.5%, 4.1%.
Headline inflation: 0.8%, 1.6%, 1.7%, 2%.
Core inflation: 1%, 1.5%, 1.7%.
Markets reacted positively to the news, with stocks coming well off their lows of the day and edging toward positive territory.
Investors had been watching the statement for how accommodative the Fed would continue to keep policy. The bond purchases were seen as critical given that the Fed has scaled back its purchases sharply. The Fed went from a peak of $300 billion a month in Treasurys during the early days of the coronavirus crisis to $80 billion more recently.
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