Summary Of FOMC Monetary Policy Meeting

Summary Of FOMC
Monetary Policy Meeting

The Federal Open
Mark Committee (FOMC) held its monetary policy meeting on late Wednesday,
followed by a press conference led by Chairman Jerome Powell. The Fed kept
interest rates near zero and promised low rates for an extended period, with
their objective of maximizing employment and allowing inflation to rise
consistently above their 2% target.

During its
policy meeting, the Fed addressed the new policy stance called ‘Average
Inflation Targeting’, introduced by Powell during the Jackson Hole Symposium
last month, where inflation will be allowed to run slightly above the 2% target
before tampering with the interest rates. According to the policy statement,
the Fed will continue its stance for loose monetary policy until inflation is
able to stay moderately above 2% for a longer period of time. This will allow
overall inflation to average near 2% and long-term inflation expectations to
reach 2%. 

The statement
also includes that the targeted inflation range will be maintained until the
Fed’s maximum employment goal is achieved. Powell also complimented on the
Fed’s forward guidance, claiming it to be powerful and suitable to encourage
stronger economic recovery.

The Fed also
concluded that short-term rates would remain at the 0%-0.25% range, most likely
until the year 2023. Following the committee’s interest rate forecast outlook
for 2023, all but four members indicated rates to remain near zero. Fed
officials also changed their economic forecasts for 2020, with a smaller
decline in Gross Domestic Product (GDP) and a lower unemployment rate.

For their GDP
projections, the 2020 GDP forecast was revised to -3.7%, compared to the
previous forecast -6.5% in June, signaling a stronger outlook for the US
economic recovery. However, GDP for the year 2021 and 2022 was revised down to
4% from 5%, and 3% from 3.5% respectively. The unemployment rate projection was
also lowered down to 7.6% from 9.3%, although August already reported an
unemployment rate of 8.4%. Inflation projection for 2020 was also revised to 1.2%
from 0.8% in June, although the Fed expects the 2% target to only be hit until
2023.

The FOMC
decision was made following a set of stronger economic data in the third
quarter. After the US economy plunged into recession in February, many
economists now widely expect a sharp rebound. Since then, the Fed had launched
a series of policy tools to ensure smooth market functioning and bolstering the
economic downfall. The large scale stimulus had sent US stocks market such as
Nasdaq to a historical high. 

However, little
indication was provided on Fed’s tampering in its bond-buying program.
According to the statement, the central bank will continue with its current
purchases of Treasurys and mortgage-backed securities to support households and
businesses in credit flow. Minutes from the July meeting showed that most
officials are looking to change the goal of the quantitative easing (QE) from
market functioning to economic support. However, Powell reiterated that the
current QE program is able to achieve both at the same time.  

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