September 18th, 2020

Support The Economy

The Fed on Wednesday committed to using its full capability to support the economic recovery. The central bank will continue buying Treasuries and mortgage-backed securities, as it has “at least at the current pace to sustain smooth market functioning.” A separate statement on Wednesday noted those figures at $80 billion of Treasuries a month and $40 billion of mortgage-backed securities.

Officials see rates remaining very low through 2023, according to the median projection of their quarterly forecasts, though four officials penciled in at least one hike in 2023.

• Fed on hold until inflation at 2%, set for moderate overshoot
• Fed: 13 of 17 officials forecast rates on hold through 2023

In other updates to quarterly forecasts, Fed officials see a shallower economic contraction this year than before, but a slower recovery in the coming years.

The Path Ahead

“The recovery has progressed more quickly than generally expected,” Powell said, while cautioning that the pace of activity will likely slow and “the path ahead remains highly uncertain.”
In addition to cutting borrowing costs in March, the central bank has pumped trillions of dollars into the financial system through bond purchases and launched a number of emergency lending facilities to keep businesses afloat (reference the “CARES Act” or the “Act”).  The economy has partly recovered from the steepest downturn on record and some sectors such as housing are doing well, but Covid-19 continues to kill thousands of Americans each week, unemployment remains high and industries like hospitality and travel are depressed.

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