US Fed hints at keeping interest rates near zero through 2023

The Federal Reserve decided to keep the interest rate unchanged, with an emphasis to using full range of tools to support the economy in this challenging time.

According to a monetary policy statement issued by the US Central Bank, the Fed fixed the short-term rates ranging from 0%-0.25%, in a decision that witnessed disagreement regarding the future prospects for interest rates.

In addition, officials addressed a new policy regime in which the Fed will allow inflation to run somewhat above the 2% target rate before hiking rates to control inflation, also indicating that rates could stay anchored near zero through 2023.

The policymaking Federal Open Market Committee (FOMC) adopted specific language to emphasize the inflation goal.

“With inflation running persistently below this longer run goal, FOMC will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%,” it said.

The FOMC expects to maintain an accommodative stance of monetary policy until these outcomes are achieved, the policy statement said.

Two voting members of the FOMC disagreed with the new statement. Robert Kaplan, the president of the Dallas Fed, said he would prefer that the Fed “retain greater policy rate flexibility”, while Neel Kashkari, the president of the Minneapolis Fed, said he would have liked to keep rates close to zero until inflation reached 2% in a sustainable manner.