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Fed maintains target rate, suggests long road to economic recovery
Yesterday, the Federal Open Market Committee (FOMC) held its April committee meeting and maintained the federal funds target rate range of 0 to 0.25 percent. NAFCU Chief Economist and Vice President of Research Curt Long said credit unions should "plan for an extended period with a zero benchmark rate and low yields across the curve."
"The text of the [committee’s] current statement conveys significant concern for the economy in the medium-term due to COVID-19,” Long said. “In his press conference, Chair [Jerome] Powell suggested that the medium term could be something like one year, and that the Fed would need to see an economy that is well on the road to recovery before it starts to withdraw support.”
The committee will continue to use its full range of tools to support the flow of credit to households and businesses, and continue to purchase Treasury securities, agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning.
"If the Fed needs more firepower, it will likely use its balance sheet to act; negative rates are unlikely but not out of the question,” he added. "The committee did not adjust its forward guidance, but the tenor of Powell’s comment suggest that rates will remain at zero at least through the end of the year and likely well into 2021.
"Even after the worst has passed, it will take some time of the economy to regain momentum,” concluded Long.
More on the meeting's outcomes can be found in the Macro Data Flash report. The FOMC will next meet June 9-10.