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Fed Policy Shows Little Change in Latest Update

  • Federal Reserve remains commitment to monetary easing in effort to bolster economy and improve credit access to businesses and households
  • Supports “maximum” employment and moderate inflation about 2 percent
  • Hews to expectations of minimal policy changes due to political and economic uncertainties

The Federal Reserve reiterated its commitment today to supporting the American economy by “promoting its maximum employment and price stability goals,” offering little change to its existing policy. The statement held to expectations that the Fed would not make any major changes due to its unwillingness to wade into the politics of the presidential election or add further uncertainty to the economy.

The Fed acknowledged the challenges the ongoing COVID-19 pandemic has created for the economy and labor market, with weaker demand and oil price declines leading to lower consumer price inflation. It asserted that control of the virus will be key to improving economic conditions, and that it will maintain accommodative financial conditions aimed at supporting the economy, calming markets, and improving credit access for businesses and households.

The Fed announced that it will continue to pursue “maximum” employment in the labor market and allow moderate inflation above 2 percent so it averages at this level “over time.” It plans to hold interest rates between zero and 0.25 percent until labor and inflation goals are met, and to “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace.”

Interest rates have remained near zero since they were slashed in March, and the Fed has also been buying about $120 billion a month in government-backed bonds. It has also adopted a more lenient policy on inflation, allowing rates to remain low even if inflation exceeds the 2 percent target rate.

The economy has shown mixed messages in recent months, with improvements in manufacturing and consumer spending offset by slower job growth and elevated unemployment. Powell warned that the nation’s economic outlook is “extraordinarily uncertain,” with a third wave of COVID-19 infections causing particular concern. The Fed says it will continue monitoring factors such as health, labor market, inflation, and financial and international markets to adjust its policy as necessary.

Some analysts have suggested that the Fed is running out of options to offer further support for the economy, given that it has already supported considerable monetary easing and that fiscal relief will have a greater effect on some areas of the economy. Powell has frequently called on Congress to pass a new round of economic stimulus, and Senate Majority Leader Mitch McConnell says the Senate will prioritize this relief when it meets next week after partisan disagreements hindered any new aid in the months leading up to Tuesday’s election.

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