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Federal Reserve Commits To Record Low Interest Rates To Bolster Inflation

The Federal Reserve is wrapping up its policy framework as it seeks to push inflation to at least 2%. Likewise, the Central Bank is poised to affirm its commitment to keep interest rates at record lows to shield the economy from high unemployment and economic slowdown.

Inflation Target

Inflation has tanked to 1% in the wake of more than 30 million Americans being rendered jobless and unemployment levels rising to 11%. To achieve the 2% inflation level, FED officials are committed to refrain from interest rate hikes until inflation and employment targets are met.

Immediate reports indicate that the new policy initiative could be announced as early as September in response to a slowdown in the U.S economy. Likewise, the markets are already pricing in a more accommodative policy framework as focus shifts to stabilizing the economy amid the COVID-19 pandemic and calming the markets.

The U.S had to cut interest rates, to, near zero as the economy felt the full force of COVID-19 disruptions. The cuts came at the backdrop of a series of rate increases that started in 2018. In recent months, central banks around the world have turned attention towards pushing inflation high in a bid to revitalize economic growth that appears to have stagnated.

Low Interest Rate Push

Low inflation level poses significant dangers for policymakers as it requires interest rates remain low. Likewise, such an environment leaves no room for policymakers to ease policies in times of downturns. For instance, FED Presidents Robert Kaplan and Charles Evans insist that rates will have to remain at current levels until inflation stabilizes above 2.5%.

Interest rates remaining at record lows should continue to support growth stocks that have continued to edge higher in the wake of the FED cutting rates. Similarly, precious metals such as gold and silver have continued to edge higher thanks to the low interest rate environment.

In contrast, yields led by bonds and treasuries have continued to edge lower as interest rates remain subdued at record lows. The dollar has also taken a significant hit plummeting to two-year lows.

Ruchi Gupta

Ruchi Gupta covers various beats from finance to technology and from lifestyle to hobbies. She has an MBA in Finance. Ruchi enjoys writing on celebrities and political news. She likes traveling and exploring places.

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