Federal Reserve Leaves Interest Rates Unchanged
Interest rates – the basis of adjustable-rate loans and an influence on fixed-rate loans – won’t change, though the Fed said inflation has started to increase.
NEW YORK – The Federal Reserve on Wednesday chose to leave interest rates unchanged near zero, prompting U.S. markets to drop at closing.
At the close of its two-day policy meeting, the Federal Reserve said the U.S. economy is beginning to strengthen following the impacts of the COVID-19 pandemic, but left interest in the range of 0%-0.25%.
The central bank will continue monthly asset purchases of $80 billion in Treasury securities and $40 billion mortgage-backed securities to ensure the economy stays on track toward recovery.
Additionally, the Fed assessed that progress on vaccinations and strong policy support have caused “indicators of economic activity and employment” to strengthen while acknowledging that inflation is on the rise.
“With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well-anchored at 2%,” the Fed said in a statement. “The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.”
In a press conference, Fed Chairman Jerome Powell said it will likely be “some time” before the Fed’s goals are achieved, noting that “we’re a long way from full employment.”
“The economy can’t fully recover until people are confident it’s safe to resume activities involving crowds of people,” he said. “There may be people around the edge of the labor force that won’t come back in unless they feel comfortable in going back to their old jobs. There will be parts of the economy that just won’t be able to fully reengage until the pandemic is decisively behind us.”
Markets responded negatively to the news as the Dow Jones Industrial Average dropped 164.55, or 0.48%, while the S&P 500 fell 0.085% and the Nasdaq Composite closed down 0.28%.
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