Following the meeting of the Federal open market Committee, the fed kept interest rates unchanged near zero, saying that “not even thinking” about promotion. The Central Bank gave its cautious forecasts on GDP growth, employment and inflation.
Wednesday ended a scheduled two-day meeting of the Federal open market Committee (FOMC) Federal reserve system (FRS).
The largest US stocks at the close of trading on Wednesday, has not demonstrated a single dynamics on the background of the news about keeping fed interest rates at the same level.
The Dow Jones Industrial Average fell 1.04%, the S&P 500 lost 0.53% and the Nasdaq Composite rose 0.67%.
Shares of the largest U.S. banks that lose from low interest rates, plummeted Wednesday: Wells Fargo (WFC) nearly 9%, Citigroup (C) 6 percent and Bank of America (BAC) by 5.74%, JPMorgan (JPM) 4%, Morgan Stanley (MS) of 3.4% and Goldman Sachs (GS) by 2%.
The fed Chairman Jerome Powell on Wednesday announced that it is maintaining interest rates at 0% -0.25% to 2022, to enable the U.S. economy to recover after the pandemic coronavirus.
The Central Bank reiterated its commitment that “expects to maintain this target range (interest rates) until then, until it is confident that the economy has withstood the recent events, and is on track towards achieving its objectives of maximum employment and price stability”.
The fed also said it will continue to increase purchase of bonds, including government bonds in the amount of $80 billion per month and mortgage-backed securities at $40 billion.
Forecast evaluation of the fed
The fed announced their estimates regarding the growth of GDP, employment and inflation in the next four years. At the same time, Powell said that the pace of growth will depend heavily on the situation of pandemic COVID-19. He noted that economic forecasts should not be interpreted as official forecasts.
“Analysis of the economic forecasts of the fed at this time when most of the economy still open, it is permeated by uncertainty,” said Daniel Dimartino Booth, General Director of Quill and former Intelligence Advisor to the Dallas fed.
Fed funds rate: 0% -0.25% to 2022, under long-term rate of 2.5%;
Dynamics of changes in GDP: a drop of 6.5% in 2020, an increase of 5% in 2021, an increase of 3.5% in 2022 and an increase of 1.8% in 2023;
The unemployment rate from 2020 to 2023.: 9,3%, 6,5%, 5,5%, 4,1% respectively.
Overall inflation from 2020 to 2023.: 0,8%, 1,6%, 1,7%, 2% respectively.
The US Department of labor last week reported a sharp jump in job growth in may, after the States began to ease quarantine measures and workers of restaurant and hotel industry started to get back to work.
Earlier this week, a Committee of the National Bureau of economic research has officially named February 2020 the beginning of the recession in the United States, after the longest period of growth in the country’s history.
Since the meetings in March, the fed undertook large-scale stimulus measures to support the economy in conditions of a pandemic, and these steps are beginning to bear fruit.
On Wednesday, the Central Bank said that “financial conditions have improved, partly reflecting policy measures to support the economy”.
At the same time, fed officials were cautious in their statements about improvements in economic indicators in the country.
Jerome Powell said: “the Proof of the employment report is that the labor market may have bottomed in may. Many forecasters widely expect recovery in the second half of the year, so it’s possible. We are not going to over-react to one data point and will be very cautious to draw any conclusions about good or bad data.”
