The Fed’s commitment to zero rates and asset purchases was not a surprise, but a somber reminder that the economy could take long to heal.
The Federal Reserve’s forecast of a slowly recovery economy and its commitment to heavy asset purchases and zero interest rates was a somber message for markets that sent buyers into bonds as the dollar weakened.
The Fed’s message did not really contain surprises, but it showed a commitment to long-term easing with a forecast that it expects interest rates to remain at zero through 2022. By the end of 2022, it also expects unemployment to reach 5.5% and inflation to reach 1.7%, below its target 2%.
„This is saying the Fed will be failing to meet their mandate for the next several years, at least through the end of 2022. That’s why you have the median fed funds dot at zero, and only two officials believe there will be an increase at the end of 2022,“ said Mark Cabana, head of short U. S. rate strategy at Bank of America. „It’s very dovish. This is generally what we had been anticipating, but I just think it reinforces the fact this is a Fed that is going ot be low for long.“
Fed Chairman Jerome Powell discussed the uncertainties facing the economy and the difficulties of re-employing all of the people who were suddenly out of work when the economy locked down.
„He was more dovish than we thought he might be,“ said Michael Schumacher, director rates at Wells Fargo.
