September 20, 2020

Federal Reserve Debates Next Steps After Shifting Approach to Rate-Setting

Either change could add a little more oomph to the central bank’s policies, potentially helping to fuel the recovery from the coronavirus-induced economic crisis. While some analysts expect changes imminently, most anticipate that the 17 Fed officials, 12 of whom vote on the rate-setting Federal Open Market Committee, will take longer to make those major steps. The Fed will provide a post-meeting statement and update its economic projections on Wednesday.

“It feels like there’s going to be a forward lean from them — there’s a refinement coming,” said Julia Coronado, a former Fed economist and founder of MacroPolicy Perspectives. Still, she does not expect either threshold-based forward guidance or a big tweak to the bond-buying program just yet. “This is a big and diverse committee, these are complicated issues, and it is uncharted territory.”

The central bank’s Summary of Economic Projections, a document in which officials anonymously forecast where interest rates, inflation and unemployment will be in coming years, will get a refresh at this meeting.

The so-called S.E.P. will extend through 2023 for the first time. Economists said they expected the Fed to indicate that interest rates would remain on hold throughout that period, reinforcing its plans to be very patient in removing the cushion it is now providing the economy. Low interest rates spur growth by making credit cheaper — encouraging homeowners to refinance, which frees up spending money, and inspiring businesses to invest.

Fed officials will also almost certainly revise down their unemployment rate projections in the document, because the jobless rate declined from 14.7 percent in April to 8.4 percent in August, a faster drop than the central bank had expected. When the Fed released its last set of projections in June, officials expected unemployment to average 9.3 percent in the last three months of 2020.

Article source: https://www.nytimes.com/2020/09/16/business/economy/fed-september-meeting.html

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