Historically low interest rates are set to remain for the foreseeable future. That’s the verdict of the Federal Reserve’s most recent meeting. As the Stock Exchange opened today, the Federal Reserve announced an update to its emergency economic policies. Here’s what you need to know:
Fed Keeps Rates Low Due to Coronavirus’ Continued Threat to U.S. Economy
The Federal Reserve is maintaining interest rates at the current rate after a meeting of the Federal Open Market Committee. During the April meeting, members of the Federal Open Market Committee (FOMC) voted to keep its target federal funds rate at the current level: 0% to 0.25%. The Fed also maintained its policy towards bond-buying plans, reaffirming its belief that the U.S. economy is still in danger, despite evidence that the coronavirus pandemic’s impact is weakening and that growth is beginning to return.
The decision by the Fed to keep rates at their current level is good news for borrows. Everything from auto loans, mortgages, and credit cards feature some of the lowest interest rates in recent memory, making now the ideal time for refinancing or buying. This, of course, isn’t by accident. The Fed is hoping consumers take advantage of these rates by spending money and helping the U.S. economy recover from a challenging year thanks to the coronavirus pandemic.
Continued Economic Growth May Lead to Inflation
The decision by the Fed to keep interest rates at historic lows may prove problematic down the road. While the Fed is hopeful that low rates will boost lending and raise consumer confidence, there is also a fear that these low rates might lead to inflation.
As the U.S. economy continues to grow after the pandemic subsides, the Federal Reserve may find itself under pressure to raise interest rates before their initial 2023 target date. According to data from the Atlanta Federal Reserve, the U.S. economy grew at a 7.8 percent annualized pace in the quarter of 2021.
How Long Will Rates Remain Near Zero?
It will be interesting to see how the FOMC reacts at their next meeting, should vaccinations and a continuing press by local governments to ease restrictions prove successful. While there are certainly signs of optimism, there is plenty of room for recovery, with only 63% of those unemployed because of the COVID-19 pandemic having returned to full-time work.
Related Article: Fed Keeps Interest Rates Low After March 2021 Meeting
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