Fed maintains rate as economic activity remains well below pre-pandemic level

July 29, 2020


The Federal Reserve announced its decision to hold interest rates steady as economic activity, sharp declines and employment remain below their levels at the beginning of the year.  Despite some uptick in recent months, the coronavirus outbreak has caused widespread human and economic hardship across the United States and around the world. The current climate has led to weaker demand and lower oil prices which according to the Federal Reserve, “are holding down consumer price inflation.”

The way forward for the U.S. economy will hinge on course of COVID-19. Economic activity, employment and inflation in the near term continue to be impacted by the on-going health crisis, while posing risks to the economic outlook over the medium term. Against this background, The target for federal fund rate was maintained at 0% – 0.25%, until the Committee is confident that the economy has weathered the recent events and is on track to achieve its maximum employment and price stability goals.

The Federal Reserve also intends to increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. Additionally, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operation. The Committee also reiterated its stance on, “monitoring the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy.”

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