The Federal Reserve is continuing to keep federal funding rates at the lowest levels in history after a meeting earlier this week. Despite the coronavirus vaccine’s rollouts, and after nearly a year of record-low borrowing costs, the Fed sees no urgency to raise lending rates.
Federal Reserve Keeps Federal Funding Rate at Current Level
The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) is maintaining the status quo on lending rates. The FOMC board agreed to keep interest rates at record lows – after nearly 11 months – in its monthly meeting. Those rates remain within a target range of 0% to 0.25%.
The FOMC regulates the federal funds rate. This is the interest rate commercial banks charge other banks for overnight lending. The rate is a crucial contributor to the Prime Rate. The Prime Rate is the lowest rate banks are willing to charge customers with the very best credit scores. The Prime Rate is typically 3% higher than the federal funds rate. Currently it’s set at 3.25%.
“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,” said FOMC officials in a post-meeting statement.
U.S. Economy Struggling Despite COVID Vaccine Rollout
The previous belief was that historically low federal funding rates would remain in place for several years. This thought process is based upon the Fed’s hopes to buoy the economy and encourage consumer spending – and bank lending.
The rollout of the coronavirus vaccines, however, may speed up this timeframe. While the U.S. economy shows signs of stagnation, it may recover yet again as more Americans receive the COVID vaccine. Recovery may also hinge on further coronavirus economic stimulus payments to Americans. This is something for which Federal Reserve Chairman, Jerome Powell, has been calling for months.
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