Jay Powell officially rallied to his new policy, already presented at the end of August, to the vast majority of members of the Fed’s monetary committee. Eight votes to two, the big American moneyers followed the boss of the Board of Governors by adopting a press release on Wednesday which specifies the new approach of the central bank.
It consists of tolerating an inflation rate that will exceed 2%, “for a certain time” so that employment reaches its highest possible level. This period of inflation above the 2% target is supposed to compensate for years in which inflation has remained below this level. In addition, as expected, the Fed confirms its pursuit of monthly public debt buybacks of $ 80 billion, to which is added $ 40 billion in bonds secured on real estate claims, themselves guaranteed by the Treasury.
No change either to its zero rate policy for “fed funds”, in place since March. This rate, manipulated by the Fed, fixes de facto the price at which banks can lend each other very short-term liquidity. By keeping it at zero, the Fed wants to ensure as much liquidity as possible in the credit markets. On the occasion of the update of their bond rate expectations, the members of the Fed’s monetary committee have also revealed that they will be keeping this ultra-stimulating policy until the end of 2023.
Jay Powell and his colleagues note the improvement in consumption, employment and investment over the summer after a depressive spring. But the Fed boss recalls that the return of solid growth depends on the ability of the United States to control the spread of the coronavirus. In this context, he considers it important for Congress to vote on a new support plan for businesses and individuals. For the moment, negotiations on Capitol Hill on this crucial issue are not making much progress.