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Interest rates unchanged as Feds predict low rates till 2020

by • June 12, 2020 • MortgageComments (0)167

Feds keep interest rates unchanged at a target range of 0.0 to 0.25 per cent

The US Federal Open Market Committee (FOMC) predicted they would keep interest rates close to zero at least till 2022, as the US central bank indicated it would take years to bring joblessness back down to the pre-coronavirus pandemic level.

interest rates unchangedThe FOMC kept its interest rates unchanged at a target range of 0.0 to 0.25 per cent as Covid-19 continues to pose considerable risks.

Prior to the announcement, Analysts had predicted that the FOMC will keep its interest rates unchanged.

The Feds in keeping the interest rates unchanged, said in their statement:

“The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.”

Commenting on the news that the Feds are keeping the interest rates unchanged, Mr Paul Ho, chief officer at the iCompareLoan, said:

“In the last recession in 2008, the unemployment was 10% and the interest rate dropped to near zero, and has remained low for almost 7 years till unemployment in the USA started to recover. In 2020 we witness unemployment going from 3.6% to around 15% in one, two months.

While the US has re-opened and unemployment rate has fallen to lower than 15% (as opposed to the forecasted 18-19%), this nonetheless have dealt a heavy blow to the US economy. Currently there is a lot of unpredictability, therefore the actual economic numbers and predictions have large deviation. But safe to say, a number to jobs are not coming back in the short term (I.e. these few years), and some jobs will be transformed or lost forever.

There is considerable downside to the US economy and the US government through a privately owned federal reserve is printing 5-6 trillion US dollars which basically means they are “stealing” or diluting the worth of others holding onto USD.

This is because only the US has the ability to print US dollars while no others can have that ability. While it is technically not printing as it is a “debt” but consider this, only the US banking system and it’s affiliates have access to this extra liquidity. And this flush of liquidity is pushing interest down to close to zero. And as we can see from the previous cycle 2008 through 2014-2015, the interest rates have remained Low.

The federal reserve. Interest rates and Singapore’s interests are highly correlated. Due to the downside risks of the economy, and potential surprises, the fed will likely continue to print money to maintain a Low interest environment and Singapore’s sibor will follow suit.

While there is talk of decoupling the world from the US dollar as the USA has become increasingly belligerent globally in its policies and acted irresponsibly, any attempts to replace the US dollar will take years, and hence for the short term or 2 to 3 years, the US economy is unlikely to recover to the point where interest rates can start to hike.

Even I would bet that the Feds will keep the interest rates unchanged and that the very low interest rates could go on for even longer than 3-5 years while unemployment recovers.”

“We believe that Feds will keep the interest rates unchanged and that it will stay low through to 2022,” said Ravi Philemon, Associate Editor of iCompareLoan.

“This is because recovery after the Covid-19 period is going to be patchy, Some industries will do better, but many others will languish with many problems, including cashflow, talent retention, disruption by technology, etc. So, many Government’s, especially the US Government, will implement austerity measures and keep rates low to help businesses and households better.”

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