Diplomacyindia.com


US Fed unlikely to offer new guidance on rates this week

September 16
13:13 2020

Washington, Sep 16 (IANS) While US Federal Reserve has adopted a new policy strategy on inflation, the central bank is unlikely to provide new forward guidance on short-term interest rates at its meeting this week, economists have said.

During the Kansas City Fed’s annual Jackson Hole research conference held last month, Fed Chairman Jerome Powell announced that the central bank will seek to achieve inflation that averages 2 per cent over time. The new strategy would allow a modest overshoot of inflation so as to trigger more “inclusive” employment and wage gains, Xinhua news agency reported on Tuesday.

But Fed officials have yet to come to a consensus as to what an overshoot on inflation would actually look like since Powell’s announcement, according to Diane Swonk, chief economist at Grant Thornton, a major accounting firm.

“They have not agreed on how high or how long an overshoot of the 2% target the Fed should actually tolerate,” Swonk wrote Sunday in an analysis, adding the Fed is expected to ease its stance on inflation without fully defining what that new stance means.

Tim Duy, professor of the University of Oregon and a long-time Fed watcher, believed that the Fed will likely remain content to use the new strategy as justification for maintaining the current near zero rate path.

“The odds favour the Fed maintains the status quo at this week’s meeting. It does not appear to have a consensus on enhancing forward guidance nor do I suspect FOMC (Federal Open Market Committee) participants feel pressure to force a consensus on that topic just yet,” Duy wrote Tuesday in a blog post, referring to the Fed’s policy-making committee.

“We had anticipated changes to forward guidance to occur at the September meeting but recent comments by Fed officials imply little urgency and a preference to wait for greater clarity about the outlook,” echoed Ryan Sweet, an economist with Moody’s Analytics.

“Therefore, we now anticipate the central bank to adopt outcome-based forward guidance in November,” Sweet said.

Some Fed officials have said that there’s no urgency for the central bank to update guidance on how long it will hold short-term interest rates near zero, as market participants understand the Fed won’t raise rates any time soon.

“Market expectations are that rates will be low for a long period of time, and so I don’t feel like there’s a burning pressure that we need to change our forward guidance today to change market expectations,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in a recent interview with the Bloomberg Odd Lots podcast.

The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of US treasuries and agency mortgage-backed securities to repair financial markets. It also unveiled new lending programs to provide up to US $2.3 trillion to support the economy in response to the coronavirus outbreak.

The Fed is scheduled to release a policy statement and its updated quarterly forecasts for the US economy Wednesday afternoon after wrapping up a two-day meeting.

“I suspect the overarching message from this meeting will maintain the theme that given the loss of fiscal support, the recovery is very fragile and dominated by downside risks such that they laugh at even the idea of thinking about raising interest rates,” Duy said.

“Powell will underscore that additional aid from Congress is needed to ensure that the economy heals from the damage triggered by the pandemic,” Swonk noted, adding the Fed’s post-meeting statement is likely to reflect the concern that “the economy is losing momentum after the initial surge that followed lockdowns.”

The US economy grew modestly over the summer amid continued uncertainty about the pandemic and its negative effect on consumer and business activity, according to a Fed survey released earlier this month.

Economists have warned that the U.S. economy is at serious risk of sliding back into recession if the White House and Congress couldn’t reach a deal on another fiscal rescue package in the coming months.

Related Articles

0 Comments

No Comments Yet!

There are no comments at the moment, do you want to add one?

Write a comment

Write a Comment

Your email address will not be published.
Required fields are marked *

Social Icons

ENVOY SPEAKS : EXCLUSIVE VIDEO CHAT WITH H.E. YERLAN ALIMBAYEV, AMBASSADOR OF KAZAKHSTAN TO INDIA

Diplomacyindia.com Video Interview with Shri Dnyaneshwar M. Mulay Secretary (CPV & OIA), Ministry of External Affairs speaking on an eventful journey of Indian Passport through its serveral phases, fast expanding network of passport seva kendras, evergrowing numbers, citizen centric service & new Initiatives

Diplomacyindia.com Video Interview with Shri Dnyaneshwar M. Mulay Secretary (CPV & OIA), Ministry of External Affairs speaking on safety & security features of the passport documents in an era of digitalisation his cherished moments & milestones as “Passport Man” of India tranforming the entire passport landscape.

Diplomacyindia.com Video Interview : Mrs. Reva Ganguly Das (IFS) Director General, Indian Council of Cultural Relations Speaking on Yoga Day Celebrations

Exclusive Interview to Diplomacyindia.com with Shri Upendra Tripathi, IAS Interim DG, International Solar Alliance (ISA) speaking on the journey of ISA so far, guiding principles, vision & priority areas & programmes for ISA.

Exclusive Interview to Diplomacyindia.com with Shri Upendra Tripathi, IAS Interim DG, International Solar Alliance (ISA) speaking on expanding rank of international solar alliance & opening the membership to the countries beyond tropics.

Diplomacyindia.com Exclusive Interview with Ambassador of Slovenia to India, H.E. Mr. Jozef Drofenik speaking on Bilateral Relations and Trade between India and Slovenia

Diplomacyindia.com Exclusive Interview with Ambassador of Slovenia to India, H. E. Mr. Jozef Drofenik speaking on Tourism in Slovenia

Pictures of Formal Launch of Website Diplomacyindia.com

Knowledge Partner

Exclusive Interview with Prime Minister of Guyana, H.E. Mr. Moses Veerasammy Nagamootoo during his recent visit to India.Highlights of the interview were Indian Cultural Connect, Vibrant Bilateral Ties and Cultural Connect and India’s Economic Prowess.

Video Message from Shri Prakash Javadekar, MoS (IC) for Forest, Environment & Climate Change on eve of Formal Launch of Website Diplomacyindia.com

Message from Gen. V K Singh, (Retd.) Hon’ble MoS, External Affairs to Diplomacyindia.com

WP2Social Auto Publish Powered By : XYZScripts.com