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FOMC Keeps Rate Unchanged, Sees No Increases Through 2023

FOMC Keeps Rate Unchanged, Sees No Increases Through 2023

In its Sept. 15-16 meeting, the Federal Open Market Committee (FOMC) voted to keep the federal funds rate unchanged at between 0% and 0.25%. The U.S. economy is still recovering from the coronavirus pandemic and there had been few expectations for rate movement.

Now, short-term rates are almost assuredly not expected to increase for years, as Federal Reserve officials largely projected no increases through 2023.

Economy gaining strength, but challenges remain

In its statement announcing the decision, the FOMC said that while economic conditions were improving, the uncertainty of the pandemic's course continues to have an overarching impact on the recovery.

"Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year," the statement read. "Weaker demand and significantly lower oil prices are holding down consumer price inflation … The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."

In their separate projections on future rates, the majority of individual voting members foresaw no rate hikes until 2024. Only one of 17 projected an increase in 2022, and four forecast an increase in 2023. In the long term, all members expect a return to normalcy, with rates falling between 2 and 3%.

Other insights from the data include a lower unemployment rate and a return to GDP growth next year after contracting 3.7% in 2020.

New Inflation Target

The FOMC also announced it would pursue a new inflation target. Until now, the Fed had aimed for a target inflation rate of 2% to achieve labor market and economic goals. Because that benchmark hasn't been met recently, the Fed will now allow inflation to surpass 2% for some time, but will ensure inflation averages out to that threshold over the long term.

Two members dissented from the decision for reasons of wanting more flexibility with rates (increases of which are used to control inflation) and more clarity on the committee's expectations.

"These changes clarify our strong commitment over a longer time horizon," Chairman Jerome Powell said at his post-meeting news conference, according to CNBC.

What this could all mean for you

The federal funds rate is interest banks charge one another for overnight borrowing, but it has an impact on all other sorts of consumer rates, like those for mortgages, cars or credit cards.

Because rates are projected to be near zero for at least a couple years to come, borrowing conditions could be favorable in certain circumstances. Already, mortgage interest rates reached a series of historic lows over the course of summer 2020.

Want to learn more about how interest rates work or what rates you could see for a home loan? Reach out to The Federal Savings Bank or start the mortgage process today.