Fed Signals Interest Rates to Stay Near Zero Through 2023 -- Update

09/16/2020 | 02:24pm

By Nick Timiraos

WASHINGTON -- Federal Reserve officials projected no plans to raise interest rates through 2023 and said they were committed to providing more support to an economy that faces an uneven recovery from the coronavirus pandemic.

In new projections released Wednesday, all 17 officials said they expect to keep rates near zero at least through next year, and 13 projected rates would stay there through 2023.

The Fed revised its postmeeting statement to deliver more specifics about the conditions that would warrant keeping interest rates near zero. Two officials dissented from the new statement.

The Fed said it would maintain rates near zero "until labor market conditions have reached levels consistent with the committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time."

The Fed's two-day policy meeting that concluded Wednesday is the first since officials last month announced a new framework that abandoned the central bank's longtime strategy of pre-emptively lifting interest rates to head off higher inflation.

Officials also revised their forecasts to reflect a faster-than-anticipated decline in the unemployment rate this summer. They now project unemployment will average around 7% to 8% during the last three months of this year, down from June projections of around 9% to 10%. The unemployment rate fell from a high of 14.7% in April to 8.4% last month, though some of the decline reflects fewer Americans looking for work right now.

The projections don't point to any meaningful improvements in most officials' economic outlook. They have indicated concern that easy gains from reopening the economy could mask deeper scars, as the most vulnerable businesses shut down and employees in hard-hit sectors face longer spells of joblessness.

While the ranks of temporarily laid-off workers have fallen by two-thirds, or around 12 million, since the spring, more than two million Americans have permanently lost their jobs. These numbers could increase as the most at-risk businesses shut down or delay plans to reopen.

The latest Fed projections show that even by the end of 2023, most officials believe inflation will only have begun returning to 2% and that unemployment will begin nearing levels that prevailed before the crisis struck in March.

Write to Nick Timiraos at nick.timiraos@wsj.com

 

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