Despite last week’s blockbuster jobs report, the Fed is keeping its foot on the gas as it responds to economic damage from the pandemic.
By September, economists expect the Fed to provide more specific guidance, promising to keep rates near zero for a certain time period or until unemployment drops to about 4.5% and inflation rises to its 2% target. The central bank also could cap yields on short-term Treasury bonds that otherwise might rise in response to the more than $3 trillion in coronavirus relief spending Congress has added to an already massive national debt.
Besides lowering its key rate to near zero, the Fed has bought more than $2 trillion in Treasuries and mortgage-backed securities during the crisis to resuscitate markets for those assets that had frozen amid widespread fears. The purchases also have helped pushed down long-term rates for mortgages, corporate bonds and other loans.Fed policymakers predict the economy will contract 6.5% this year before rising a healthy 5% next year and 3.5% in 2022.
Although states are reopening, many consumers have said they’ll remain leery of visiting restaurants, stores, movie theaters and other gathering spots until a vaccine is widely available, possibly by mid-next year.Unemployment is projected to fall from 13.3% to 9.3% by the end of the year, 6.5% by the end of 2021, and 5.5% by the end of 2022, according to the Fed’s median estimate. But some perspective: In February, unemployment was at a 50-year low of 3.5%.
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