Fed Pledges to Keep Rates Low

The Federal Reserve concluded its two-day policy meeting today and renewed its pledge to hold the interest rate near zero in the long term to support the economic recovery from the coronavirus pandemic.

All 17 central bank officials expect to keep the rates near zero at least until next year, and 13 said they would hold through 2023.

The market has a similar perception, and doesn’t expect any increase in the rates until February 2023, according to a CNBC Fed Survey released yesterday (September 15), with 37 respondents, who include economists, fund managers, and strategists.

The Fed said in its monetary policy statement it will maintain the rates near zero “until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

The central bank projects unemployment will average around 7% to 8% during the last three months of this year, down from June projections of around 9% to 10%. The official unemployment rate was 8.4% last month.

Survey Says…

The CNBC survey respondents expect that average inflation in the six months before the Fed makes any increase n the rates would be 3.2%.

Sixty-five percent of the respondents consider the decisions of Congress and the Fed to tackle the economic effects of the coronavirus inflationary.

More than half believe the current recession is over and on average ended in May. The other 47% that believe it isn’t over, and they expect it will be gone in April (on average).

GDP is expected to decline 2.6% this year, a better forecast than the previous CNBC survey, which projected a 4.5% drop.

Fed policymakers are a little bit more pessimistic, and see economic growth dropping by 3.7% this year.

About 70% of CNBC responders also said the recovery is going faster than expected.

But the majority, 53%, believe there is a risk of a second wave of Covid-19 during this fall and winter.

The Votes are in… 

Regarding the 2020 election, many doubts.

According to 47% of the respondents, the presidential winner will not be known for a week after Election Day, on November 3.

And 36% believe it could take a month or longer.

For 86%, a contested election is a risk for the stock market.

As for stock prices, 89% believe they are too high, considering the earnings forecasts and the outlook for economic growth.

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