The Fed Is Planning Another Ultra-Long Period of Ultra-Low Rates
Jerome Powell fielded questions from reporters Wednesday, and he made it clear the Fed is a long, long way from abandoning its current dovish policy stance. The Fed plans to keep interest rates near zero, while monetizing US debt, financing zombie companies, and pouring new dollars into the market through balance sheet purchases. But even that may not be enough, and the Fed is now hinting that even more fiscal support may be necessary.
Let’s look at some of the details.
When asked about interest rates, Powell replied:
With regard to interest rates, we now indicate that we expect it will be appropriate to maintain the current zero to 0.25% target range for the federal funds rates until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.
This basically means ultra-low rates from now until at least 2023. There’s no surprise there. Following the 2008 financial crisis and Great Recession, the Fed kept the target federal funds rate at 0.25 percent for 83 months, before slowly allowing rates to inch upward in 2015.
For the last five years of that period, the Fed generally maintained that the economy was “strong,” “strengthening” or generally doing well. The fact that the Fed refused to allow rates to move upward in this period hinted at the true weakness of the economy of that period, however.
We’re now just six months into the current period of target rates at 0.25 percent, and its now more implausible than ever to claim the economy is doing well. There are still more than 12 million Americans currently collecting unemployment checks, and as of last week, nearly 800,000 workers filed new unemployment claims. As of late August, 30 to 40 million Americans were estimated to be at risk of eviction in coming months.
Not surprisingly, then, the fed expects it to be a while before “full employment” is again achieved, and as Powell notes: “We expect to maintain an accommodative stance of monetary policy until these o