USA: Federal Reserve announces that it will keep the rate near zero even if there is inflation

08/27/2020 - 13:30

• Clarín.com
• World

The Federal Reserve announced on Thursday a significant change in the way it manages interest rates, saying it plans to keep them near zero even if inflation exceeds the 2% target.

The change means that the US central bank is prepared to tolerate higher inflation and that the cost of borrowing for homes and businesses - such as auto loans, mortgages and corporate expansion - is likely to remain very low for years to come.

The new target says that "after periods in which inflation has been persistently below 2%, proper monetary policy will likely aim to achieve inflation moderately above 2% for some time."

The Federal Reserve announced on Thursday a significant change in the way it manages interest rates. Photo: EFE

The Fed's new policy seeks to underscore the central bank's belief that a low unemployment rate was good for the economy and indicated that it will seek to assess employment "failures" from the peak.

In a speech detailing the changes, Fed Chairman Jerome Powell made clear that the policy change reflects the reality that strong inflation, once the biggest threat to the economy, no longer appears to pose a threat. serious danger , even when unemployment is low and the economy is growing apace.

Rather, Powell said, the economy has evolved in a way that allows the Fed to keep rates much lower than it would without igniting pressure on prices.

"The economy is always evolving, '' Powell said." Our revised statement reflects our appreciation for the benefits of a strong job market, particularly for many low- and moderate-income communities, and that a strong job market can be sustained without causing an increase. unwanted from inflation. ''

Jerome Powell. Photo: AFP

"Our approach could be seen as a flexible form of average inflation targeting. Our decisions on appropriate monetary policy will continue to reflect a wide range of considerations and will not be dictated by any formula," Powell said in remarks at Jackson's annual research conference. Hole of the Kansas City Fed, which is being held this year virtually due to the pandemic.

In his speech, Powell said that the Fed's decision to allow unemployment to fall to a 50-year low before the pandemic had played a major role in lifting the fortunes of low-income workers.

The new approach came after the Federal Open Market Committee, the Fed's policymaking committee, formally approved on Thursday a renewal of the central bank's statement on long-term objectives and monetary policy strategy afterwards. of a one-year review of its monetary policy framework.

Last month, the Fed held its benchmark interest rate unchanged at a record low near zero while warning that a recent resurgence of COVID-19 cases across the country began to weigh on the economic recovery.

The Fed cut interest rates to near zero in two unscheduled meetings in March and began buying massive amounts of US Treasuries and agency mortgage-backed securities to repair financial markets.

It also unveiled new loan programs to provide up to $ 2.3 trillion to support the economy in response to the coronavirus outbreak.

The US economy contracted at a revised annual rate of 31.7 percent in the second quarter amid the mounting consequences of COVID-19, the US Department of Commerce reported Friday.

AP and Xinhua

AP