All eyes on Fed’s FOMC meet!

Last updated: 16 Sep, 2020 | 03:48 pm

All eyes on Fed’s FOMC meet!

The Federal Open Market Committee is set to meet on Wednesday, for the last time before the US presidential election even as the US economy is still trying to recover from the pandemic shock. The FOMC will provide its quarterly update on its estimates for GDP growth, unemployment and inflation. Here are the key things to look out for: 

GDP growth

Fed is expected to give out healthier economic projections than they did earlier this year in June. According to current estimates, the US economy’s GDP is expected to shrink by less than 6.5% in 2020, which was predicted earlier by the US central bank three months ago. The improvements reflect a better than expected performance for the economy, given the economic hit due to the pandemic.

Unemployment outlook

“The median forecast of year-end joblessness of 9.3% now seems like a very unlikely scenario since unemployment rate has already fallen to 8.4%.” The US economy has recouped about 11 million lost jobs in the first two months of the recession as manufacturing activity has improved,  and some measures of consumer spending have surged.

Bond-buying program

Fed may also ramp up its bond-buying program to improve liquidity which signals towards a stronger approach to economic stimulus

Inflation outlook

The largest change to their monetary policy is realignment of target inflation rate to a rate which is acceptable from the earlier limit of 2% inflation. Earlier, when inflation neared it’s target of 2%, the central bank raised the Feds Fund rate, hence, controlling interest rates as a method to slow economic growth, and as a result control inflationary pressures. 

Though raising rates does lower the inflationary pressure, it has a detrimental impact on the overall growth. Hence, the Fed is expected to keep the target inflation rate range-bound. As a result, even if the 2% inflation target is breached, the Fed will not immediately raise interest rates.

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