Federal Reserve Maintains Fed Funds Rate at 0 to 0.25% and Outlines Further COVID-19 Action
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Federal Reserve Maintains Fed Funds Rate at 0 to 0.25% and Outlines Further COVID-19 Action

The Federal Reserve has held the Fed Funds target rate constant at zero to 25 basis points today.   Chair Jerome Powell indicated that the ongoing COVID-19 public health crisis has weighed heavily on the economic condition of the country.   Inflation remains an overriding concern to extraordinarily low interest rates, but is very muted as a result of the economic slowdown and does not present a concern.  The Federal Reserve also indicated that it remains prepared to use tremendous tools in the interim as it sees fit in order to maintain liquidity, including using its balance sheet to purchase treasury and agency mortgage-back securities.   It is also employing lending powers to an unprecedented extent through a “mainstreet facility” to make credit available where such credit may be necessary to avoid or reduce household suffering (with the understanding that the Federal Reserve has lending powers but may not make grants or extend loans that it does not expect to see repaid). 

The Fed’s statement indicates an intention to maintain rates here until it is confident that the economy has weathered COVID-19.   The statement does not introduce the possibility of a move into a negative Fed Funds rate as was advocated last week by Narayana Kocherlochota, the former Chair of the Minneapolis Fed.   Importantly, the Fed’s statement does not commit to maintaining low interest rates until unemployment returns to 2019 levels.

The Fed refrained from stating that it believes that the economy will recover nicely in 2021 after COVID-19 is behind us.   Powell recognizes that there is uncertainty around the virus and that the virus is going to dictate the length and depth of this depression.  We will obviously see significant declines in economic activity and significant increases in unemployment in the near term, but POwell and the Fed are unable to provide guidance for the intermediate and longer term. 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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