NATIONAL NEWS

Fed Stresses its Commitment to Low Rates for Long Run

Jan 27, 2021, 1:28 PM
FILE (Photo by Spencer Platt/Getty Images)...
FILE (Photo by Spencer Platt/Getty Images)
(Photo by Spencer Platt/Getty Images)

WASHINGTON (AP) — The Federal Reserve pledged on Wednesday to keep its low interest rate policies in place even well after the economy has sustained a recovery from the viral pandemic.

The Fed said in a statement after its latest policy meeting that the improvement in the economy and job market has slowed in recent months, particularly in industries affected by the raging pandemic. The officials kept their benchmark short-term rate pegged near zero and said they would keep buying Treasury and mortgage bonds to restrain longer-term borrowing rates and support the economy.

The policymakers also warned that the virus poses risks to the economy and removed phrases from their previous statement that had said the pandemic was weighing on the economy in the “near term” and that it posed risks “over the medium term.” The removal of these phrases suggests that Fed officials aren’t sure how long the uncertainty will last.

For now, the job market, in particular, is faltering, with nearly 10 million jobs still lost to the pandemic, which erupted 10 months ago. Hiring has slowed for six straight months, and employers shed jobs in December for the first time since April. The job market has sputtered as the pandemic and colder weather have discouraged Americans from traveling, shopping, dining out or visiting entertainment venues. Retail sales have declined for three straight months.

In its statement Wednesday, the Fed also added a reference to vaccinations — a sign that the policymakers, along with most economists, expect a sharp rebound in the second half of the year as the virus is brought under control by vaccines and government-enacted rescue money spreads through the economy. Americans fortunate enough to have kept their jobs have stockpiled massive savings that suggest pent-up demand that could be unleashed, with a big lift to the economy, once consumers increasingly feel safe about resuming their old spending patterns.

“The Fed is recognizing the slowdown in recent months, with payrolls and retail sales falling in December as restrictions were tightened,” said Brian Coulton, Fitch’s chief economist. “But there are hints of improving confidence in the course of economic recovery over the next year or so.”

At the same time, the Fed has signaled that it expects to keep its key short-term rate at a record low between zero and 0.25% through at least 2023. Earlier this month, Vice Chair Richard Clarida said he expects the Fed’s bond purchases to extend through the end of this year, which would mean continued downward pressure on long-term loan rates.

Since the Fed last met, in mid-December, there has been some good news. The distribution of an effective vaccine has begun, and a $900 billion relief package was enacted in late December. President Joe Biden has since proposed another financial support plan — a $1.9 trillion package that is larger than many economists had expected and will require congressional approval.

In recent months, Powell had repeatedly urged Congress and the White House to provide such stimulus. Some central bank officials have suggested that they might consider withdrawing Fed stimulus later this year, earlier than investors generally expect, although Powell contradicted that view in a public appearance earlier this month.

In December, the Fed said it would continue its bond purchases until “substantial further progress” had been reached toward achieving its goals of low unemployment and stable inflation of about 2% a year.

The Fed wants to avoid a repeat of 2013 when Chairman Ben Bernanke told Congress that the Fed was considering tapering the bond buys it was then engaged in. Bernanke’s remark caught markets unaware and sent longer-term rates jumping — an event that came to be dubbed the “taper tantrum.”

The Fed’s drive to keep long-term rates low has helped hold down mortgage rates and fueled home sales and price increases. In November, U.S. home prices jumped at their fastest pace in more than six years, surging 9% compared with 12 months earlier, according to the S&P CoreLogic Case-Shiller 20-city home price index.

The prospect of additional stimulus and ongoing vaccinations has raised some concern that as Americans eventually release pent-up demand for airline tickets, hotel rooms, new clothes, and other goods and services, the economy might accelerate and annual inflation could surge above the Fed’s 2% target. If many companies don’t initially have the capacity to meet that demand, prices would pick up. Yet most Fed officials appear unconcerned about those trends potentially igniting runaway price increases.

One reason the Fed isn’t expected to raise rates anytime soon is that it adopted a framework last year that calls for inflation to average 2% over time. Given that inflation has mostly languished below that level since the Fed adopted it as a target in 2012, policymakers would have to let inflation run above 2% for some time to make up for the years of below-target price increases.

The Fed refers to this framework as “flexible.” It isn’t committing to a time period over which inflation will exceed 2%. The central bank prefers some inflation in order to guard against deflation, a destabilizing fall in wages and prices.

As a result, even if hiring picks up and unemployment tumbles later this year as the vaccines curb the virus, economists expect the Fed to stress that it won’t raise rates until inflation actually accelerates.

KSL 5 TV Live

Top Stories

National News

Demonstrators participate in a protest against the police killing of Tyre Nichols on January 27, 20...
Adrian Sainz, Associated Press

Memphis authorities release video in Tyre Nichols’ death

Video showing five Memphis officers beating Tyre Nichols, a Black man, has been made public.
2 days ago
An apparent shortage of pharmacists is forcing CVS and Walmart to reduce the hours of its pharmacie...
Jordan Valinsky

CVS and Walmart cut pharmacy hours, close some locations earlier, citing staffing shortage

An apparent shortage of pharmacists is forcing CVS and Walmart to reduce the hours of its pharmacies, as they close earlier in thousands of locations.
2 days ago
Video of the attack on Paul Pelosi at his San Francisco home was released after a California court ...
Jeremy Herb, Jack Hannah and Jack Forrest

Court releases video of attack on Paul Pelosi

The San Francisco Superior Court on Friday released video and audio recorded during last year's attack on Nancy Pelosi's husband, Paul Pelosi, including police body-cam footage depicting the moment of the attack and the alleged assailant's police interview where he admitted he wanted to hold the then-House speaker hostage.
2 days ago
This image taken from video provided by the NAOJ & Asahi Shimbun, shows spiral swirling through...
Audrey McAvoy, Associated Press

Camera captures night sky spiral after SpaceX rocket launch

A camera atop Hawaii's tallest mountain has captured what looks like a spiral swirling through the night sky. Researchers believe it shows the aftereffects of a SpaceX rocket launch when the company's Falcon 9 rocket sent a GPS satellite into orbit.
2 days ago
People attend a candlelight vigil in memory of Tyre Nichols at the Tobey Skate Park on January 26, ...
Simone Seikaly, KSL NewsRadio

Utah safety officials, NAACP, react to death of Tyre Nichols

The Utah Department of Public Safety together with the Salt Lake Branch of the NAACP have called the death of Tyre Nichols a "despicable act of violence and inhumanity."
2 days ago
Holding on to their secret and each other, mother and son set out to reclaim their sense of home, i...
LINDSEY BAHR AP Film Writer

‘A Thousand and One’ wins Sundance grand jury prize

"A Thousand and One," a drama about an impoverished single mother and her son in New York City, won the Sundance Film Festival's grand jury prize in the U.S. dramatic competition, while "Going to Mars: The Nikki Giovanni Project" was awarded the top prize in the U.S. documentary category.
2 days ago

Sponsored Articles

Fiber Optical cables connected to an optic ports and Network cables connected to ethernet ports...
Brian Huston, CE and Anthony Perkins, BICSI

Why Every Business Needs a Structured Cabling System

A structured cabling system benefits businesses by giving you faster processing speeds and making your network more efficient and reliable.
notebook with password notes highlighted...
PC Laptops

How to Create Strong Passwords You Can Actually Remember

Learn how you can create strong passwords that are actually easy to remember! In a short time you can create new ones in seconds.
house with for rent sign posted...
Chase Harrington, president and COO of Entrata

Top 5 Reasons You May Want to Consider Apartment Life Over Owning a Home

There are many benefits of renting that can be overshadowed by the allure of buying a home. Here are five reasons why renting might be right for you.
Festive kitchen in Christmas decorations. Christmas dining room....
Lighting Design

6 Holiday Decor Trends to Try in 2022

We've rounded out the top 6 holiday decor trends for 2022 so you can be ahead of the game before you start shopping. 
Happy diverse college or university students are having fun on their graduation day...
BYU MBA at the Marriott School of Business

How to Choose What MBA Program is Right for You: Take this Quiz Before You Apply!

Wondering what MBA program is right for you? Take this quiz before you apply to see if it will help you meet your goals.
Diverse Group of Energetic Professionals Team Meeting in Modern Office: Brainstorming IT Programmer...
Les Olson

Don’t Let a Ransomware Attack Get You Down | Protect Your Workplace Today with Cyber Insurance

Business owners and operators should be on guard to protect their workplace. Cyber insurance can protect you from online attacks.
Fed Stresses its Commitment to Low Rates for Long Run