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FOMC Maintains Rates Continues to Assess COVID-19 Effects

FOMC Maintains Rates Continues to Assess COVID-19 Effects

During its Nov. 4-5 meeting, the Federal Open Market Committee (FOMC) voted unanimously to maintain the federal funds rate at 0.10%. This low rate is one of multiple tools the FOMC is using to support employment as well as price stability in the face of the "tremendous human and economic hardship" caused by the ongoing COVID-19 pandemic.

For background, the federal funds rate has been below 1.0% since March 2020 and at or below 0.10% since April 2020. Looking ahead, the FOMC plans to keep the federal funds target rate low, at between 0% and 0.25%, until labor market conditions improve and overall inflation is on track to exceed 2%.

HOW THE FOMC IS RESPONDING TO COVID-19

When those goals might be achieved is still unknown, though, given the autumn uptick in COVID-19 cases and the uncertainty around eventual vaccine availability.

Meanwhile, the FOMC plans to closely monitor a wide range of indicators to inform its decisions and to maintain an accommodative stance in its monetary policy — in other words, low interest rates meant to stimulate economic activity. In addition to labor market conditions and inflationary pressures, the FOMC will also look at public health information, along with relevant financial and international developments, as it considers next steps.

The course of COVID-19 will determine both the outlook for the U.S. economy and what actions the FOMC ultimately takes in the near and long term. The FOMC said that COVID-19 will continue to weigh heavily on all economic affairs in the short term, and that even over the medium term it will pose a significant risk. Some improvements in employment and consumer spending have been logged since the initial outbreak, but there is still a long way to go on the road to the pre-COVID-19 world.

"Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year," the statement read. "Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit."

INFLATION TARGETS AND A CALL FOR "DIRECT FISCAL SUPPORT"

Because inflation is currently undershooting the FOMC's target of 2%, it plans to keep pursuing inflation moderately above 2% for some time to come so that the long-term average will still hit 2%.

The FOMC also plans to increase its holdings of Treasury and mortgage-backed securities as part of its broader commitment to stimulative monetary policy. At the same time, Chairman Jerome Powell stated after the meeting that "direct fiscal support" via legislation may be necessary to keep many Americans afloat, and that the expiration of CARES Act benefits remains a major risk to recovery, per Forbes.

Even without such additional fiscal relief measures in the immediate pipeline, the FOMC's Nov. 4-5 monetary policy decisions should be beneficial to a lot of households. More specifically, with the federal fund rates still low, banks can extend similarly low rates for mortgages, auto loans, and consumer credit. FOMC projections from its Sept. 15-16 meeting hold that rates will remain low at least through 2023.

Looking to learn more about interest rates or get started with your own loan? Connect with The Federal Savings Bank today or start the home loan process online.