The Federal Reserve is keeping interest rates near zero after its latest meeting. The move to not alter rates for short-term loans at record-lows was expected. But it represents the continued threat of the coronavirus pandemic on the U.S. economy.
Fed Maintaining Low Interest Rates
The Federal Reserve is hoping to continue the U.S. economy’s slow recovery due to the coronavirus pandemic’s chaos. During the recent December meeting, the Federal Open Market Committee (FOMC) voted to keep its target federal funds rate at the current level: 0% to 0.25%.
The maintenance of low rates was not unexpected. It did, however, highlight the economy’s fragility – even as the prime holiday shopping season reaches its peak.
“Considerable Risks” Posed By the Coronavirus to the U.S. Economy
“Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the Federal Reserve said in a statement. “The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term and poses considerable risks to the economic outlook over the medium term,” the statement added.
Optimism Growing for 2021
Historically low interest rates will likely remain in place for several years, as the Fed hopes to buoy the economy and encourage spending – as well as lending. And despite concerns about the U.S. economy’s current health, the Federal Reserve is optimistic about its future. The Fed’s report indicates optimism for a 4.25% growth in the U.S.’s gross domestic product in 2021 – up from 4% in the September economic outlook.
However, that growth somewhat hinges on the prospects of a second economic stimulus package (following on from the CARES Act). It also depends on potential direct stimulus payments to Americans, and the success of one or more COVID-19 vaccines.
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