Fed Forecasts Low Interest Rates for Years, and Until Inflation Picks Up
Mr. Powell said that the purchases were helping to keep credit flowing in the economy.
“There are various ways and margins that we can adjust our tools going forward, and we’ll continue to monitor developments,” he said.
Even so, the Fed’s powers are limited and the central bank head once again noted that more fiscal support — the kind of direct spending that only Congress can authorize — would be needed to help the economy continue its recovery.
“My sense is that more fiscal support is likely to be needed,” he said.
Millions of people remain out of work and it is unclear how quickly — or even if — all of those workers will find re-employment.
Fed officials now expect the unemployment rate to average 7.6 percent over the final three months of the year, based on the median forecast, which is lower than they had previously expected but still sharply higher than the 3.5 percent rate that prevailed heading into the downturn. Those projections were included in the Fed’s updated Summary of Economic Projections, a set of estimates for how the economy and interest rates will develop in coming years. It was the so-called S.E.P. that showed interest rates on hold through 2023, based on the median forecast.
“The labor market has been recovering, but it’s a long way, a long way, from maximum employment,” Mr. Powell said, adding that the recovery will move most quickly through areas that were not directly affected by the virus. Parts of the economy facing a direct hit — like airlines, sports stadiums and restaurants — “are going to be challenging for some time.”
“It’s millions of people,” he said, adding that it is the Fed’s job “not to forget those people.”
As part of that effort, Mr. Powell in August announced that the Fed was shifting its policy strategy, and no longer planned to lift interest rates simply because the unemployment rate had dropped below levels it saw as sustainable. That came alongside the shift to average inflation targeting, which will allow prices to run slightly higher than 2 percent at times.
The September statement backed up that move.
“The committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent,” the Fed said Wednesday. Previously, it had pledged to aim for 2 percent inflation on a “symmetric” basis, meaning that the Fed was equally unsatisfied if inflation ran above or below the target.