Fed expected to raise economic forecasts, extend vow to keep rates low

  • In Business
  • 2020-09-16 05:09:09Z
  • By Reuters

By Ann Saphir and Howard Schneider

(Reuters) - The Federal Reserve is expected to wrap up its latest policy meeting on Wednesday with somewhat rosier economic forecasts but a renewed pledge to keep interest rates low for as long as the world's biggest economy needs to recover from its deepest downturn in decades.

The two-day meeting is the U.S. central bank's first under a newly adopted framework that promises to shoot for inflation above 2% to make up for periods, such as now, where it is running below that target. The strategy means the Fed will not take its foot off the monetary gas pedal even if unemployment continues to drop at a faster-than-expected pace.

Fed officials don't appear ready to translate that framework into an explicit promise to keep the central bank's key overnight lending rate in its current range of 0% to 0.25% until certain economic benchmarks - say, 2.5% inflation - are met.

The rate-setting Federal Open Market Committee is scheduled to release its policy statement and a summary of fresh economic projections at 2 p.m. EDT (1800 GMT). Fed Chair Jerome Powell is due to hold a virtual news briefing half an hour later.

"We expect the Committee to adopt this type of outcome-based forward guidance by the end of the year," Lewis Alexander, chief U.S. economist at Nomura, wrote in a note ahead of this week's Fed meeting.

But the Fed is likely to close out this meeting with other signals for its long-term commitment to easy monetary policy, Alexander and other analysts said.

Those may include incorporating into the post-meeting policy statement the new "average" 2% inflation target and fresh quarterly forecasts showing most if not all Fed policymakers see no need to raise interest rates through at least 2023.

The Fed may also lean into its bond-buying program as a means to support the U.S. recovery from the recession triggered by the coronavirus epidemic rather than to just supply liquidity to fragile financial markets. Such a change would shore up expectations for a continued easy money policy without actually bolstering purchases.


Still, there's room for surprises on Wednesday, including the chance the Fed will provide more formal forward guidance on interest rates, or a ramp-up in bond-buying that would signal a more muscular approach to economic stimulus.

"In both these cases, and especially the latter, the market reaction could be quite dovish," Cornerstone Macro economist Roberto Perli wrote on Monday.

Since Fed policymakers last met in late July, the economic outlook has brightened somewhat. A scary midsummer spike in daily new U.S. cases of COVID-19 has subsided, though clusters of infections continue to surface around the country. More than 194,000 Americans have died from the disease, according to a Reuters tally.

The economy also has recouped about half of the 22 million jobs lost in the first two months of the recession, unemployment has dropped to 8.4% from a crisis high of 14.7%, manufacturing activity has increased and some measures of consumer spending have surged.

But much of the recent data suggests the recovery is slowing.

So while the summary of Fed policymaker projections is expected to point to lower unemployment and faster economic growth than anticipated in the last round of forecasts in June, Powell will likely stick to his message that the road to recovery will be long and bumpy.

That may be doubly so because much of the government aid to small businesses and the unemployed contained in a $2.3 trillion spending package passed by the U.S. Congress in March is gone, and lawmakers are at an impasse over providing another aid package. A stopgap program to give the unemployed an extra $300 every week - less than the now-expired $600 weekly supplemental payment under the first rescue package - ended this month.

Powell and other Fed officials have repeatedly said the economic damage of the coronavirus crisis will be harder to undo without new government aid.

(Reporting by Ann Saphir; Editing by Paul Simao)


More Related News

It's Time to Rein in the Fed

At the Kansas City Federal Reserve's virtual Jackson Hole economic-policy symposium, Fed chairman Jerome Powell drove a final stake into the legendary inflation fighter Paul Volcker's Fed. The new orthodoxy promises easy money as far as the eye can see and holds that inflation is good -- not Venezuelan and Zimbabwean hyperinflation of course, just a moderate dose -- thus ensuring that a dollar every year is worth less. Americans should be afraid.Powell announced the Fed's new inflation-averaging strategy. The central bank is changing how it defines and attempts to achieve the 2 percent inflation target, which it adopted on its own authority in 2012. Henceforth, the Fed will attempt to...

U.S. reverses COVID-19 testing guidance again: exposed without symptoms need tests
U.S. reverses COVID-19 testing guidance again: exposed without symptoms need tests
  • US
  • 2020-09-18 19:23:35Z

The Centers for Disease Control and Prevention (CDC) sparked widespread outcry among state public health officials and experts in late August when it said that people who do not have symptoms may not need to get tested. Before Aug. 24, the CDC had encouraged testing for all those who were exposed. Friday's guidance update effectively returns the CDC's testing guidance to what it said before it was altered in late August.

Exclusive: Playboy explores deal to return to the stock market
Exclusive: Playboy explores deal to return to the stock market
  • US
  • 2020-09-18 18:06:04Z

A deal with a blank-check firm - referred to on Wall Street as a special purpose acquisition company (SPAC) - would result in Playboy's return to the stock market, nine years after it went private in a $207 million deal led by its late founder Hugh Hefner and private equity firm Rizvi Traverse Management. The COVID-19 pandemic compounded its challenges, leading Playboy earlier this year to stop printing the magazine, ending a nearly seven-decade run on newsstands that began in 1953 with a debut issue featuring Marilyn Monroe.

Moderna sees 20 million doses of COVID-19 vaccine candidate by year end
Moderna sees 20 million doses of COVID-19 vaccine candidate by year end
  • US
  • 2020-09-18 15:00:17Z

A handful of vaccines, including those from Pfizer Inc and AstraZeneca, are also being tested in large studies. Moderna had enrolled 25,296 participants out of a planned 30,000 in its late-stage study as of Wednesday. Moderna has a vaccine supply deal in place with the U.S. for 100 million doses, and has finished advanced talks with the European Union for the vaccine.

Rain aids effort to control blazes in U.S. West; one firefighter dies
Rain aids effort to control blazes in U.S. West; one firefighter dies
  • US
  • 2020-09-18 14:35:08Z

A California firefighter was reported dead on Friday as a front of humid and rainy weather aided the efforts of weary emergency crews and brought some relief to a region that has suffered a historically devastating fire season. The firefighter died on Thursday while battling the El Dorado wildfire in California's San Bernardino National Forest, U.S. Forest Service officials said on Friday. "Our deepest sympathies are with the family, friends and fellow firefighters during this time," the Forest Service said in a statement posted on Twitter, adding that the cause of the firefighter's death was under investigation.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Business