• Tue. Oct 19th, 2021

Fed Holds Rates And Asset Purchases Until “Progress” Toward Employment

ByMichael Grey

Dec 21, 2020

The Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) has decided to keep interest rates unchanged in a target range of between 0% and 0.25%, its lowest possible level, since the US central bank does not consider negative interest rates.

The Fed has indicated that since inflation has long been below the 2% target , its goal is for price increases to be “moderately” above that level for “some time” so that inflation averaged 2%.

To achieve this goal, the Fed has pledged not to raise interest rates until labor market conditions have reached levels “consistent” with what the Fed considers “full employment” and until inflation not only reaches 2 %, but is “on track” to exceed that figure “moderately” for a certain time.

On the other hand, the US issuing institute has pledged to buy $ 120 billion a month in assets until it appreciates that “substantial progress” has been made towards its goals of full employment and price stability.

The purchases will be made up of 80,000 million a month in government bonds and 40,000 million in mortgage securitizations. “These asset purchases help promote the agile functioning of the market and accommodative financial conditions, thus supporting the flow of credit to households and businesses,” the Fed said.

Unemployment and inflation
The US job market created 245,000 non-farm jobs last November. On its side, unemployment fell to 6.7%, thus maintaining the job recovery that began in May, after almost 21 million jobs were destroyed in April.

The country’s economy experienced a 2.7% contraction in the third quarter of 2020 , according to the third estimate of the data published by the Government’s Office of Economic Analysis.

For its part, the personal consumption expenditure price index, the variable preferred by the Fed to monitor inflation, stood at 1.2% last October compared to the same month last year. The monthly rate in the tenth month of the year was 0%, two tenths less than the previous month.

The underlying variable, which excludes energy and food prices from its calculation due to their higher volatility, also stood at 0%, two tenths less than in September, while the annual rate increased by 1.4% , two tenths less than the previous month.

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