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Fed: No rate hike expected until 2023 – VP Bank column

The US Federal Reserve is leaving its monetary policy unchanged. The new monetary policy strategy is meanwhile reflected in communication. The US monetary authorities are ramming further pegs into their new monetary policy strategy. Powell sees the significantly changed text in the press release as “strong forward guidance”. The monetary authorities will therefore not touch the key interest rate until the inflation rate is sustained above 2% and full employment prevails. That is a clear message and makes it clear: interest rates have been abolished for the time being.

The new projections from the members of the Fed’s Open Market Committee were also eagerly awaited. The slump in growth for 2020 will therefore be far less dramatic. According to Fed officials, there is now a slump in growth based on gross domestic product (GDP) of 3.7% for the current year instead of the 6.5% decline expected in June. On the other hand, GDP growth in the coming year in the median estimate of 4% will be less than the last assumed 5%.

According to the Fed projections, the key interest rate will remain unchanged until at least 2023. The unchanged key interest rate expected for the coming year already reflects the Fed’s new inflation target. The general question is: How does the Fed intend to achieve inflation rates of over 2%?

The Fed’s monetary policy barn doors will remain wide open for the next few years. The route is: There will be no rate hikes for the time being. Washington will only be willing to act when inflation rates have sustained above the 2% mark. For the time being, the US unemployment rate will remain high and dampen wage growth. Without rising wages, however, there will be no rise in inflation. Inflation rates of sustained over 2% remain more of a wish than reality for the time being – no matter how much money the Fed throws on the market.

Disclaimer: This text is a column of the VP Bank. 4investors is not responsible for the content of the column and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!

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