This means that it may take years for interest rates to rise again. The Fed’s “exact plot,” which reflects central bank policymakers’ forecasts, does not show any rate increases this year or 2021. Even in 2022, most politicians believe that rates will remain at current interest rates.
“We don’t think about raising rates – we don’t even think about raising rates,” Fed Chairman Jerome Powell told reporters during a news conference on Wednesday.
The market seemed pleased with the central bank’s update, and stocks jumped briefly. Lower interest rates allow companies to borrow lower interest rates, which is good for the stock market.
The Fed also said it would increase its purchases of government securities and mortgage securities to keep the market running smoothly.
“For now, she’s giving the market what it wants and needs,” said Drew Matus, chief market strategist at MetLife Investment Management.
The Fed cut interest rates to almost zero in March at the start of the coronavirus pandemic. Since then, the central bank has raised billions of dollars to support financial markets, business and state and local governments.
But the central bank, like the federal government, may need to do more to get the economy back on its feet, Powell reiterated at a news conference Wednesday.
One of the Fed’s main goals is to promote economic conditions that achieve both stable prices and maximum sustainable employment.
Millions of people will not get their old jobs back, “and there may be no jobs for them for a while,” Powell told a news conference.
Even by the end of 2022, the unemployment rate is still expected to be 5.5%, much higher than at the beginning of this year.
The Fed does not expect economic difficulties to subside soon: It updated its economic forecasts for the year, forecasting a 6.5% decline in gross domestic product, the broadest measure of the economy, in 2020.
But Powell dismissed comparisons to the Great Depression, telling reporters he didn’t think it was “a good example or a likely result of a model of what’s going on here at all, I really don’t.”
“The road ahead for the economy is highly uncertain and continues to depend heavily on the path of the pandemic,” Powell said.