The Fed retains rates of interest secure close to zero, saying the financial system remains to be nicely beneath pre-pandemic ranges
The Federal Reserve kept short-term lending rates near zero in a decision Thursday that characterized the economy as growing but not anywhere near where it was prior to the coronavirus pandemic outbreak.
As widely expected by the markets, the Fed kept its policy rate in a range between 0% and 0.25%, where it had been since an emergency seven months ago in the early days of the coronavirus pandemic.
There were few language changes in the statement made by the Federal Open Market Committee after the meeting, although the panel noted that the economy continues to struggle.
"Economic activity and employment have continued to recover, but remain well below their level at the beginning of the year," the statement said.
The language is a slight downgrade from the September statement that economic activity "has picked up in recent months".
However, Chairman Jerome Powell noted that he believes the Fed has a lot of work to do to support the recovery.
"Is monetary policy out of power or out of ammunition? The answer to that is no, I don't think so," Powell said during his press conference after the meeting. "I think we are determined to deploy these powerful tools to support the economy for as long as necessary during this difficult time, and no one should doubt that."
Markets reacted little to the Fed news and stocks continued to rally while the dollar was lower.
The Fed's decision to stabilize is based on concerns about the direction of the economy as Covid-19 cases accelerate and officials ponder restrictions on activities that could hamper growth. As has been the case several times before, the Fed emphasized that the growth path largely depends on the path taken by the coronavirus.
The Fed has tried to use accommodative policies to stimulate growth, despite officials warning in recent months that more needs to be done on the fiscal side.
The committee also revised its assessment of financial conditions, saying Thursday they "remain accommodative," in contrast to September's assessment that conditions "have improved".
In the third quarter, the US gross domestic product saw the fastest increase of all time, increasing 33.1% on an annual basis after shrinking 31.4% in the previous period. The economy has regained 11.4 million of the 22 million jobs lost in March and April, but wage growth has slowed in recent months and is expected to slow to 530,000 in October.
However, Congress and the White House remained in negotiations to provide more tax aid. The election results, if expecting so many market participants, likely mean spending on the low side of what has been talked about by various proposals.
The Fed's decision at that meeting was unanimous, although it did not in September, when two members protested a new approach to inflation in which the FOMC would withhold rate hikes until inflation was well above the 2% target.
The statement made no changes to the new approach to a "flexible average inflation target," an effort by the Fed to achieve a mandate that it has largely missed over the past twelve years. A key element of the new approach is a commitment not to raise interest rates even if unemployment falls sharply, which has historically been seen as a key sign of an increase in inflation.
Previous Feds have used preventive hikes to ease price pressures, but that won't happen under the new regime.