09/17/2020
What happened with the Fed today?
COVID-19 vaccine race
Today, the Fed wrapped up one of its regularly scheduled meetings that was anything but regular - as the U.S. weathers the worst economic crisis since the Great Depression, grapples with high unemployment, and sees no sign of another bailout coming anytime soon (despite recent efforts by the aptly-named Problem Solvers Caucus).
This is also the last meeting before the November presidential election, so itās safe to say that the vibe was, to use a technical term, ānot chill.ā (Anyone else glad theyāre not Jerome Powell right now?)
Letās set the scene:
The Federal Reserve (a.k.a. the Fed) is the U.S.ās central bank, responsible for setting monetary policy (like interest rates and target inflation rates) and maintaining the stability of our financial institutions.
The Federal Open Market Committee (FOMC) is the group that meets throughout the year and consists of the Fedās Board of Governors, as well as rotating presidents of Federal Reserve banks in major American cities.
At the last meeting of the FOMC in August, they unveiled a new policy framework theyāve been working on for years that will allow inflation to run higher (as long as it averages out to 2%) in order to bring down unemployment and speed up growth.
Economists, investors, and banks alike have been anxiously awaiting this meeting to see what policy updates might come out of it, and more specifically what the Fedās economic outlook would be (given the better-than-expected joblessness numbers this quarter) and whether interest rates would stay low.
So, what did they have to say?
Economic forecast: Not quite doom-and-gloom. The Fedās economic projections looked a bit more optimistic, as they predicted lower decline in GDP and lower unemployment rates in the remainder of 2020.
Keep āem low. To help the economy recover from the pandemic, interest rates will remain near zero for the foreseeable future (and may even stay there until 2023). Before they consider raising rates, theyāll want to see maximum employment and inflation holding steady at 2%.
What does that mean for you? Wall Street was happy with the news, and you should be, too, if youāre looking to borrow or refinance.
The downside is that, with interest rates low, that means your returns on a savings account or CD will be low, so you may need to shop around more to find the best savings account for you.
With the rosier outlook for the rest of the year and the stock market holding gains after the Fedās announcement, it might also be a good time to invest in stocks, if you havenāt already. (But buyer beware: The stock market has been a rollercoaster this year, so make sure you understand how to make the most of a volatile market.)
