Fed keeps US interest rates near zero, downgrades ’21 GDP growth projection to 5.9%

Author: Adam Yanelli


HOUSTON (ICIS)--The US Federal Reserve announced on Wednesday that it will maintain interest rates at 0-0.25%, and also downgraded its projection for GDP growth in 2021 to 5.9% from 7.0% in its June 2021 projections.

The central bank also increased its inflation projection for 2021 to 4.2% from 3.4% in June while noting that, while elevated, it continues to reflect largely transitory factors.

The Fed said that since inflation persistently ran below 2%, they will aim to “achieve inflation moderately above 2% for some time” in order to achieve a 2% average over time and longer-term inflation expectations remain “well anchored” at 2%.

The central bank said it continues to see stronger economic activity and employment, and that while the sectors most impacted by the pandemic have improved in recent months, the rise in COVID-19 cases has slowed the recovery.

The Federal Reserve has a dual mandate to keep inflation under control and to encourage maximum employment.

The Fed said that the path of the economic recovery continues to be dependent on the course of the coronavirus, and that while progress on vaccinations is likely to reduce the effects of the public health crisis on the economy, risks remain.

The Fed indicated it could ease off on its monthly purchases of financial assets.

The central bank said in its last meeting that it was continuing to increase its holdings of Treasury securities by at least $80bn/month and of agency mortgage‑backed securities by at least $40bn/month, “until substantial further progress has been made toward its maximum employment and price stability goals”.

The Fed said Wednesday that the economy has made progress toward these goals since then.

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed said.

Demand for plastics and chemicals tends to rise and fall at multiples of GDP. As a result, demand usually falls during recessions and rises during expansions.

Interest rates and other monetary policies can affect GDP by increasing or restricting the availability of credit to companies and households.

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