The Fed Plans to Raise Interest Rates—Years from Now
On Wednesday, the Federal Reserve’s Federal Open Market Committee voted to continue with a target federal funds rate of 0.25 percent, and to continue with large-scale asset purchases. According to the committee’s press release:
The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
This statement might be summarized best as “more of the same,” and in spite of whatever other statements might be made about Fed officials or about how the economy is relatively strong or improving, the fact is Fed policymakers voted unanimously on Wednesday against tapering of any kind, and in favor of continued extremely accommodative policy.
In other words, at the Fed there is no appetite at all for ever testing the waters to see just how fragile this current economy is in spite of all we hear about a “V-shaped recovery” and GDP numbers showing an economy roaring back.
And why should the Fed act as if the recovery were well underway? As of last month, total employment is still more than 7 million jobs below the February 2020 peak. Meanwhile, new jobless claims increased by more than thirty thousand last week, rising to a sickly 412,000.
Nevertheless, the “big news” coming out of the Fed—at least as far as many news outlets were concerned—is the fact that many FOMC members expect the Fed to raise the benchmark rate “as soon as 2023” based on the so-called dot plot showing FOMC member expectations. As CNBC reports:
Wednesday’s forecast showed 13 members of the Federal Open Market Committee believe the Fed will increase rates in 2023 and the majority of them believe the central bank will hike at least twice that year. Only five members still see the Fed
Article from Mises Wire