United States: Fed keeps rates at effective floor and additional stimulus measures unchanged in June
June 10, 2020
At its 9–10 June meeting, the Federal Open Market Committee (FOMC) held the target range for the federal funds rate at its effective floor of 0.00%–0.25%. Moreover, the Fed reaffirmed its commitment to using its full range of powers to support the economic recovery.
The Fed decided to keep the target range at its effective floor due to the grim economic outlook, which is expected to keep unemployment and inflation levels depressed in the short term. Lockdown measures to contain the virus have battered employment levels, while lower oil prices and weak demand have dragged on inflation in recent months. To ensure sufficient flow of credit to households and businesses and the effective transmission of monetary stimulus to broader financial conditions, the Fed will also sustain its purchases of Treasury securities, and agency residential and commercial mortgage-back securities at its current pace, as well as continuing to offer large-scale overnight and term repurchase agreement operations.
Looking ahead, the Fed will likely keep the target range and its asset purchasing programs at its current rate until “it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”. The Bank also stands ready to act appropriately to support the economy if conditions deteriorate further.
Commenting on June’s meeting, analysts at Goldman Sachs noted:
“We continue to expect forward guidance that delays liftoff roughly until the economy reaches full employment and 2% year-on-year inflation, though the exact criteria are quite uncertain. We also expect the FOMC to introduce front-end yield curve control that caps Treasury yields out to a horizon somewhat short of the date when the liftoff criteria are likely to be met.”
The next FOMC meeting is scheduled for 28–29 July.
Author: Steven Burke, Economist