The US Federal Reserve sent out "strong, powerful guidance" on Wednesday (16 September), as it predicted interest rates would stay near zero until at least the end of 2023.
Further, the central bank said it would not tighten policy until inflation has been "moderately above" above 2% "for some time", as it looked to put in place its new inflation-targeting framework recently outlined by chair Jerome Powell at the Jackson Hole symposium.
Powell said the statement meant "rates will remain highly accommodative until the economy is far along in its recovery" from the Covid-19 pandemic.
The chair added the new inflation framework was "all about credibility, and we understand perfectly that we have to earn credibility".
"This framework, we have to support it with our actions, and I think today is a very good first step in doing that. It is strong powerful guidance," he said.
Powell reasoned that the pandemic recovery was "here, and it is well along", with the Fed revising its economic expectations - it now expects GDP to fall by 3.7% in 2020, rather than the 6.5% it predicted in June.
Unemployment, meanwhile, should drop to 7.6%, compared with its previous estimate of 9.3%, by year-end.
Schroders chief economist and strategist Keith Wade said the new policy, which marked a change from the previous regime that would have seen the Fed move to tighten ahead of an inflation overshoot, "means the Fed is going to be more patient" on inflation.
The statement itself, which contained no movement in rates or asset purchases, was "no real surprise", Wade added, and "is in line with past meetings just ahead of a Presidential election where the approach has been to avoid saying or doing anything controversial".
US economy 'crying out for fiscal stimulus'
Fidelity International global macro economist Anna Stupnytska noted the US economy had shown "strong evidence of the rebound" since the last FOMC meeting, "with continued upside surprises in the labour market and virus cases on a downward trajectory".
But, while this suggested no reason to act, "it is clear from today's message that the FOMC remains concerned about the outlook due to continued uncertainty about the virus trajectory".
"In addition, the decreasing probability of additional fiscal stimulus before the election, the election itself, weak global recovery, trade tensions are likely to be other factors that could complicate the recovery path."
President of Stenn International Dr. Kerstin Braun, meanwhile, said Powell had already "done what he can to stop economic freefall". Now, the US economy is "crying out for fiscal stimulus".
Braun said: "Manufacturing output is still slower than expected and any sector relying on consumer footfall will continue to struggle until a vaccine is available.
"The silver lining is that housing and technology have returned to growth mode, underpinned by the reopening of retail, so this is the beginning of a return to normality.
"However, there is a bumpy road ahead in Q4 - social unrest, the climax to a divisive US election campaign and global trade tensions are all still fixed in the consumer psyche.
"But none of these are as important as finding a vaccine - that is the only true route back to American economic normality."
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