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US Fed unlikely to offer new guidance on rates this week
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IANS | 16 Sep, 2020
While US Federal Reserve has
adopted a new policy strategy on inflation, the central bank is unlikely
to provide new forward guidance on short-term interest rates at its
meeting this week, economists have said.
During the Kansas City
Fed's annual Jackson Hole research conference held last month, Fed
Chairman Jerome Powell announced that the central bank will seek to
achieve inflation that averages 2 per cent over time. The new strategy
would allow a modest overshoot of inflation so as to trigger more
"inclusive" employment and wage gains, Xinhua news agency reported on
Tuesday.
But Fed officials have yet to come to a consensus as to
what an overshoot on inflation would actually look like since Powell's
announcement, according to Diane Swonk, chief economist at Grant
Thornton, a major accounting firm.
"They have not agreed on how
high or how long an overshoot of the 2% target the Fed should actually
tolerate," Swonk wrote Sunday in an analysis, adding the Fed is expected
to ease its stance on inflation without fully defining what that new
stance means.
Tim Duy, professor of the University of Oregon and a
long-time Fed watcher, believed that the Fed will likely remain content
to use the new strategy as justification for maintaining the current
near zero rate path.
"The odds favour the Fed maintains the
status quo at this week's meeting. It does not appear to have a
consensus on enhancing forward guidance nor do I suspect FOMC (Federal
Open Market Committee) participants feel pressure to force a consensus
on that topic just yet," Duy wrote Tuesday in a blog post, referring to
the Fed's policy-making committee.
"We had anticipated changes to
forward guidance to occur at the September meeting but recent comments
by Fed officials imply little urgency and a preference to wait for
greater clarity about the outlook," echoed Ryan Sweet, an economist with
Moody's Analytics.
"Therefore, we now anticipate the central bank to adopt outcome-based forward guidance in November," Sweet said.
Some
Fed officials have said that there's no urgency for the central bank to
update guidance on how long it will hold short-term interest rates near
zero, as market participants understand the Fed won't raise rates any
time soon.
"Market expectations are that rates will be low for a
long period of time, and so I don't feel like there's a burning pressure
that we need to change our forward guidance today to change market
expectations," Neel Kashkari, president of the Federal Reserve Bank of
Minneapolis, said in a recent interview with the Bloomberg Odd Lots
podcast.
The Fed cut interest rates to near zero at two
unscheduled meetings in March and began purchasing massive quantities of
US treasuries and agency mortgage-backed securities to repair financial
markets. It also unveiled new lending programs to provide up to US $2.3
trillion to support the economy in response to the coronavirus
outbreak.
The Fed is scheduled to release a policy statement and
its updated quarterly forecasts for the US economy Wednesday afternoon
after wrapping up a two-day meeting.
"I suspect the overarching
message from this meeting will maintain the theme that given the loss of
fiscal support, the recovery is very fragile and dominated by downside
risks such that they laugh at even the idea of thinking about raising
interest rates," Duy said.
"Powell will underscore that
additional aid from Congress is needed to ensure that the economy heals
from the damage triggered by the pandemic," Swonk noted, adding the
Fed's post-meeting statement is likely to reflect the concern that "the
economy is losing momentum after the initial surge that followed
lockdowns."
The US economy grew modestly over the summer amid
continued uncertainty about the pandemic and its negative effect on
consumer and business activity, according to a Fed survey released
earlier this month.
Economists have warned that the U.S. economy
is at serious risk of sliding back into recession if the White House and
Congress couldn't reach a deal on another fiscal rescue package in the
coming months.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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