Federal Reserve Will Keep Interest Rates Near Zero Until 2022

TOPLINE

The Federal Reserve announced Wednesday that it kept interest rates near zero and indicated that they’ll likely remain there until at least 2022 as the economy tries to recover from the coronavirus pandemic.

KEY FACTS

Crucial quote

“We are not even thinking about thinking about raising rates,” Federal Reserve chairman Jerome Powell confirmed. “There is great uncertainty about the future,” he said, reiterating that the central bank is strongly committed to doing “whatever we can, for as long as it takes” to help support the economy. “We’ve been very willing to adapt and will continue to be,” he said. “When the time comes, after the crisis has passed, we will put emergency tools back in the toolbox.”

Chief critic

“Powell’s tone on the underlying economy remains cautious and while he welcomed the May jobs report, he notes the enormous damage still lying in the wake of COVID-19,” according to Vital Knowledge founder Adam Crisafulli. Powell’s message on growth is “much more cautious than the current market narrative,” he warns.

Tangent

“The Fed understands we are just in the beginning phases of the economic recovery and making rash changes to policy or forward guidance is premature at this time,” says Charlie Ripley, senior investment strategist for Allianz Investment Management. “As the economic recovery continues to take shape we expect monetary accommodation to be slowly trimmed back and better guidance around that should evolve in the coming months.”

Key background

Stocks rallied after the Fed’s announcement, as Wall Street cheered optimism about an economic recovery. The Fed’s unprecedented intervention to support the economy is a crucial factor lifting stocks in 2020: The Central Bank has injected nearly $3 trillion into financial markets since the end of February. Earlier this week, the tech-heavy Nasdaq hit a new record high and the S&P 500 turned positive for the year, fully recouping its losses from the coronavirus pandemic.

Further reading

Nasdaq Hits Record High As Amazon, Apple Shares Jump (Forbes)

S&P 500 Turns Positive, Fully Recovering Coronavirus Losses (Forbes)

Mass Protests Across The U.S. Have No Impact On Stocks, What Gives? (Forbes)

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