Business

Fed says it will keep stimulus coming for years

Posted June 10, 2020 2:09 p.m. EDT
Updated June 10, 2020 3:12 p.m. EDT

Fed says it will keep stimulus coming for years

— The Federal Reserve left interest rates unchanged Wednesday and committed to maintaining its unprecedented stimulus plan until the economy "has weathered recent events."

That means it could be years until interest rates rise again. The Fed's "dot plot", which reflects the forecasts of the central bank's policy makers, isn't showing any rate hikes this year or in 2021. Even in 2022, the majority of policymakers believe rates will remain at the current rate levels.

Stocks briefly jumped after the central bank's announcement. Lower interest rates allow companies to borrow at lower rates, which is good for the stock market.

The Fed also said it would increase its purchases of Treasury securities and mortgage-backed securities to keep the market functioning smoothly.

"For now it gives the market what it wanted and needed," Drew Matus, chief market strategist at MetLife Investment Management.

The Fed slashed interest rates to near zero in March at the outset of the coronavirus pandemic. Since then, the central bank has committed billions of dollars to supporting financial markets, businesses, and state and local governments.

Even though Fed Chairman Jerome Powell has vehemently opposed negative interest rates, which other developed world central banks have had to revert to, voices supporting negative rates from within the Federal Reserve network are getting louder.

Beyond interest rates, the central bank acknowledged the "tremendous human and economic hardship" that the coronavirus pandemic has brought upon people around the world, and it doesn't think the economic difficulties will let up anytime soon: The Fed updated its economic projections for the year, predicting a 6.5% drop in gross domestic product, the broadest measure of the economy, in 2020.

By December, the Fed expects the unemployment rate to fall to 9.3%, down from 13.3% in May, but still substantially above the 3.5% rate from February -- a near 50-year low.

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