Powell says rates will stay low until growth is very close to Fed goals and even after

Business | 17 Sep 2020 8:35 am

Many analysts were disappointed the Federal Reserve was not more specific about how long it wanted inflation to stay above 2 percent, one likely reason that the stock market ultimately fell.

Carl Tannenbaum, chief economist at Northern Trust, said the Fed will likely keep rates at nearly zero for at least five years. The Fed held its rate that low for seven years during and after the 2008-2009 recession.

The Fed ultimately first raised rates in December 2015, when the unemployment rate was 5 percent. On Wednesday, the Fed projected that it will keep rates at zero in 2023 even as it forecasts unemployment will fall to 4 percent.

Chair Jerome Powell said the Fed’s benchmark rate will stay low “until the expansion is well along, really very close to our goals and even after.”

The Fed has significantly altered its inflation goal, from simply reaching to 2 percent to pushing inflation above that level so that it averages 2 percent over time. That is intended to offset long periods of inflation below that level.

If businesses and consumers come to expect increasingly lower inflation, they act in ways that entrench slower price and wage gains, which can be a drag on economic growth.-AP

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