Powell: "Economic Outlook Uncertain but Recovering Faster Than Expected" (Summary)

Fed Signals Zero Interest Rates Until 2023
US GDP and Unemployment Rate Forecasts Revised Upward
2022 Unemployment Rate Expected at 4.6%
"Asset Purchase Program Also Maintained"

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), said on the 16th (local time), "The economic outlook is very uncertain, but recovery is generally progressing faster than expected."

After announcing the maintenance of the zero interest rate at 0.00~0.25% following the Federal Open Market Committee (FOMC) meeting, Chairman Powell pointed out in a virtual press conference that although the U.S. economy is recovering faster than expected, overall economic activity remains at a much lower level than before the COVID-19 pandemic. He also emphasized that "the future direction is very uncertain."

Chairman Powell explained that the Fed will continue purchasing U.S. Treasury and mortgage-backed securities at the current pace. Along with maintaining zero interest rates, this shows a clear commitment to supporting both financial markets and the recovery of the real economy through continued asset purchases.

He stated, “We believe our policy support is sufficient to support expansion at this time,” emphasizing that there is no intention to change the current monetary policy responding to COVID-19 for the time being.

On this day, the Fed projected the U.S. economic growth rate for this year at -3.7% and the unemployment rate at 7.6%. The estimates announced in June were -6.5% and 9.3%, respectively.

The unemployment rate is expected to fall to 5.5% by the end of next year and 4.6% by the end of 2022. As of August, the U.S. unemployment rate was 8.4%. Although the unemployment rate has dropped below 10% for the first time since the COVID-19 crisis, further declines are expected to be gradual.

This aligns with the Fed’s separately released dot plot, which indicated maintaining zero interest rates until 2023, suggesting that U.S. employment is not expected to recover to pre-COVID-19 levels until 2023. USA Today reported that the Fed forecasted maintaining zero interest rates for 4 to 5 years.

In its statement, the Fed specified the adoption of the average inflation targeting system announced in August. The Fed stated that it expects it to be appropriate to maintain the current interest rate until ▲labor market conditions reach levels consistent with the FOMC’s assessment of maximum employment and ▲inflation rises to 2% and reaches a trajectory that moderately exceeds 2% for some time. The Fed changed the phrase from the previous "achieving a harmonious 2% inflation target" to "achieving 2% inflation over the long term."

Meanwhile, the decision on the interest rate was not unanimous. Robert Kaplan, President of the Dallas Fed, and Neel Kashkari, President of the Minneapolis Fed, cast dissenting votes.