The Federal Reserve expects to keep rates ultra-low through at least 2023 to help the economy. The Fed also pledged to keep buying $120 billion in Treasuries and mortgage-backed securities each month until the economy has made “substantial progress”.
“The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said after its latest policy meeting last Wednesday, deciding to maintain the target range for the federal funds rate at 0-0.25 percent. The U.S. central bank slashed interest rates to near zero earlier this year in an effort to support markets amid the pandemic shock.
The Fed reiterated that the economy is going to rebound at a healthy pace next year as viral vaccines become widely distributed. But the next three to six months will likely be painful for the unemployed and small businesses as pandemic cases spike, Chair Jerome Powell said at a news conference.
Powell stressed the need for further rescue aid from Congress to ease the impact of increased apartment evictions and business failures, and he expressed optimism about the deal under consideration by Congress.
Congressional leaders appear to be nearing agreement on a $900 billion relief package that would provide extended unemployment benefits, more loans for small businesses and possibly another round of stimulus checks for individual Americans.
The officials foresee the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September. For next year, in anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%.
By the end of 2021, the Fed expects the unemployment rate to fall to 5% from the current 6.7% — lower than the 5.5% rate it had forecast in September.