The US central bank system, the Federal Reserve (Fed), expects to keep its key interest rate level around 0 percent until 2023. That will let the central banking system know on Wednesday. The main interest rate of the Fed has long been at a range of 0 to 0.25 percent, in order to boost the American economy. Also on Wednesday, the interest rate was not tinkered with.
The Fed is keeping the bandwidth at the same level because of the improved economic noise about the US economy. While the central banking system in June assumed an economic contraction of 6.5 percent for this year, this expectation has now been adjusted to a smaller minus of 3.7 percent.
“We see economic activity picking up again after the lean second quarter and households have made up for three quarters of the decline in spending,” Fed Chairman Jerome Powell said of the improved economic situation.
Powell did stress that the corona pandemic makes the outlook “extremely uncertain.” He expects that the American economy will only return to full throttle when people are confident enough to undertake activities as usual.
New inflation policy visible
In addition to the improved economic outlook, the Fed’s new inflation policy also became visible on Wednesday. Last month, the central banking system announced it was pursuing a slightly higher inflation target, which is seen as a sign that interest rates will remain around zero for longer.
The goal is to keep inflation above 2 percent for a longer period of time, in order to reach an average of 2 percent over an even longer period. Inflation has been around 1 percent for a long time and is therefore far from the target. The Fed said on Wednesday that it would not change monetary policy until the 2 percent inflation rate has been reached.