WASHINGTON (AP) – The United States Federal Reserve announced Wednesday that it will continue to keep interest rates near zero until at least 2023, as part of its efforts to accelerate economic growth and lower the unemployment rate.
The central bank said it will also try to bring inflation above 2% a year. The Fed left its short-term benchmark rate unchanged, near zero, where it has been since the pandemic intensified in March.
The Fed’s benchmark rate influences borrowing costs for home buyers, credit card users, and businesses. The bank’s board of directors hopes that an extended period of low rates will encourage greater use of credit and more spending, although its new policy also carries the risk of inflating stocks or causing other bubbles in the financial market.
The steps of the Fed take place with certain improvements in the economy as a background, although it remains weak, with a drop in hiring and an unemployment rate of 8.4%.
The central bank statement says that as inflation has fallen below its 2% target in recent years, it will seek « now to achieve inflation moderately above 2% for some time. » He also said that he will keep rates near zero « until inflation has risen to 2% and is on track to moderately exceed 2% for a while. »
The change reflects growing concern at the Fed that in recessions, inflation often falls well below 2%, but does not necessarily reach 2% when the economy expands. Over time, that means average inflation drops more relative to the target.
The Fed prefers a little inflation because it gives it more leeway to cut or raise interest rates in the short term.