Federal Open Market Committee, 16/09/2020

Federal Open Market Committee meeting, US Fed. 15-16/09/2020

US Federal Reserve to continue with loose monetary policy  

The Federal Reserve’s Open Market Committee met on 15^th-16^th September. As expected, no new initiatives were announced although the Committee reaffirmed its commitment to keep interest rates low and to continue with its very substantial monthly asset purchase scheme.  Concern was expressed that US consumer price inflation had frequently fallen short of the Fed’s 2% target during much of the last decade. The very accommodative monetary policy will therefore be maintained until inflation rises above this level, in order that the inflation rate may average out at 2%. Indeed, a chart of economic projections released by the Fed after the MPC meeting did not suggest that there were any plans to raise the Fed Funds Rate at any time before the end of 2022. Chairman Jerome Powell hinted that extra government spending would also be advisable to stop the economy from stalling.

There was no mention of the extraordinary high levels of broad money growth in recent months. In August, rather surprisingly, the quantity of M3 money fell. However, both the annual and annualised quarterly growth rate remain high and a significant rise in inflation is likely by the end of 2021, suggesting that the Fed may have to change course and tighten monetary policy sooner than it currently anticipates to prevent the US economy from entering into an unsustainable boom