Fed says the stimulus will continue for years

A face mask is seen in front of the New York Stock Exchange (NYSE) on May 26, 2020 at Wall Street in New York City. - Global stock markets climbed Monday, buoyed by the prospect of further easing of coronavirus lockdowns despite sharp increases in case rates in some countries such as Brazil. Over the weekend, US President Donald Trump imposed travel limits on Brazil, now the second worst affected country after the United States, reminding markets that while the coronavirus outlook is better, the crisis is far from over. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)

This means that it may take years for interest rates to rise again. The “dot plot”, which reflects the Fed’s central bank policy makers’ estimates, does not show any interest rate increase this year or in 2021. Even in 2022, most policy makers believe that rates will remain at current rate levels.

“We are not considering raising rates – we don’t even think about raising rates,” he told reporters at a press conference Wednesday.

The market seemed satisfied with the update of the central bank and stocks jumped briefly. Low interest rates allow companies to borrow at lower rates, which is good for the stock market.

The Fed also said it would increase Treasury securities and mortgage-backed securities purchases to keep the market running smoothly.

“For now, it gives the market what it wants and needs,” said Drew Matus, chief market strategist at MetLife Investment Management.

The Fed lowered interest rates to zero at the beginning of the coronavirus pandemic in March. Since then, the central bank has spent billions of dollars to support financial markets, businesses, state and local governments.

However, the central bank and the federal government may have to do more to rebuild the economy, Powell repeated at a press conference Wednesday.

Unemployment crisis

One of the Fed’s main goals is to promote both stable prices and economic conditions that ensure maximum sustainable employment.

The central bank has acknowledged the “enormous human and economic hardship” coronavirus pandemics have brought to people around the world. The Fed expects unemployment rate to drop to 9.3% by December. 13.3% in Mayhowever, it is still well above 3.5% since February – the lowest level in about 50 years.

Millions of people won’t be able to get their old jobs back and “it might not be a job for them for a while,” Powell said at the press conference.

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Even at the end of 2022, the unemployment rate is still estimated at 5.5%, much higher than the beginning of this year.

Powell of some demographic groups especially women, black and Spanish workers bear the burden of the unemployment crisis.

The Fed does not expect economic hardships to pick up any time soon: In 2020, it updated its economic forecasts for the year, predicting a 6.5% drop in the largest measure of the economy, the gross domestic product.

Powell refused to compare with the Great Depression, however, and told reporters that “he doesn’t really think it is a good example or possibly a result for a model of what’s happening here, I don’t really know.”

A section of uniqueness of pandemic stagnationFor example, in a man-made way: the economy was artificially closed to prevent the spread of the virus.

“The path to the economy is very ambiguous and remains highly dependent on the path to the pandemic,” Powell said.

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