The Journal Gazette
 
 
Wednesday, September 16, 2020 1:00 am

Fed expected to leave rates alone

CHRISTOPHER RUGABER | Associated Press

WASHINGTON – Federal Reserve policymakers are meeting this week for the first time since they significantly revised the Fed's operating framework in ways that will likely keep short-term interest rates near zero for years to come.

As a result, analysts expect the Fed to keep its benchmark rate unchanged after the two-day meeting that ends today. It has been pegged at nearly zero since March after the pandemic and the measures taken to contain it essentially shut down the economy.

But the statement that Fed policymakers release today is expected to contain revisions that reflect the sweeping changes that Fed Chair Jerome Powell announced late last month in how the central bank operates. The Fed will also issue its quarterly economic projections, which will for the first time include estimates for growth, unemployment and the Fed's benchmark interest rate for 2023.

Those projections may underscore how long the Fed expects to keep rates low. Analysts expect they will show that the Fed foresees keeping its benchmark rate at nearly zero through 2023.

Powell issued the Fed's new framework at a virtual meeting of economists and central bankers last month. The changes are significant, though some analysts have complained that details of how the changes will be implemented are lacking.

In one key shift, the Fed will no longer follow its longtime practice of raising its benchmark interest rate simply because the unemployment rate has fallen to a low level that could spur inflation. Instead, it will wait for actual evidence that prices are rising. That reflects a view among some high-ranking Fed officials that economic models it has used in the past no longer accurately reflect how the economy works.

Instead, low unemployment and even rising wages no longer necessarily push up inflation, Fed officials believe. With most consumers and businesses accustomed to mild price increases, they have adjusted their behavior in ways that act to keep inflation low. Businesses, for example, facing increased global competition, are less likely to pass on higher labor costs to customers.

((Markets update))

Wall Street gave up some of an early gain but still closed higher Tuesday. Good showings for big technology companies outweighed losses in banks and elsewhere in the market.

The S&P 500 rose 0.5% after being up more than 1% earlier. It's the second straight sizable gain for the benchmark index following its worst week since June. Big Tech stocks have been bouncing back this week after suddenly losing altitude earlier this month amid worries that their prices had climbed too high.

On Tuesday:

+ The S&P 500 gained 17.66 points, or 0.5%, to 3,401.20.

+ The Dow Jones Industrial Average rose 2.27 points, less than 0.1%, to 27,995.60.

+ The Nasdaq composite picked up 133.67 points, or 1.2%, to 11,190.32.

+ The Russell 2000 index of small company stocks rose 1.18 points, or 0.1%, to 1,538.15.


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