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Monday, October 25, 2021

Federal Reserve Has Stabilized Their Interest Rates To Zero But Continues To Fight Declined Pandemic Rates

On Thursday, the Federal Reserve announced provisional rates of borrowing inching to zero which indicates positive growth in the economy. However, they have not been able to recover their prior pandemic rates.

Since the initial coronavirus days at the beginning of 2020, the Fed has managed to maintain its range of interest rates from 0% to 0.25%.

Federal Reserve Rates since COVID-19

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Jerome Powell, the Chairman of Federal Reserve, assured on utilizing monetary policies to achieve the pre-coronavirus level. In an after-meeting public conference, he announced that the Federal Reserve is committed to reinforcing the economy with the use of prevailing methods.

The Fed Open Market Committee announced a gradual improvement which is still beneath their usual level. Federal Reserve announcements regarding picking up their pace did not have any major impact on the stock market, with the value of the dollar still very low.

Despite stabilizing efforts from the Fed, the growing number of coronavirus cases is likely to hinder the growth due to limitations in undertakings. The Federal Reserve has continuously stated the impact and control of COVID-19 on its entire trajectory of development.

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In order to encourage positive growth at a faster pace, the Fed recently decided to implement an accommodative program. Nonetheless, Fed officials have been continuously emphasizing the need to pay attention to financial matters, since the last few months.

Federal Reserve
Federal Reserve

While acknowledging the significant improvement, major changes need to be done according to Tom Garretson, RBC Wealth management strategist. Their committee has reported positive effects of the accommodative strategies they resorted to.

US GDP revealed an increase of 33.1% in the 3rd quarter as compared to 31.4% seen in the last quarter. 530,000 payrolls had decelerated till October. 22 million citizens were laid off from their jobs in the months of March and April. Yet, millions of people have been able to recover with the help of a growing economy.

As of now, negotiations regarding financial aid are halted due to differences between the White House and Congress. The post-election market is likely to witness a decline due to the changing propositions in proposals.

The Thursday meeting saw a unanimity among members of the Federal Reserve. Unfortunately, in a September meeting, 2 members raised objections against the inflation policy. They predicted that the FOMC would probably step back due to increasing rates till they are able to touch a comfortable target of 2%.

Within the last decade, the Federal Reserve has experienced quite a few shortages. As a solution, they had resorted to their usual approach by implementing a flexible normal rise target. The same is used now as well. One of the most important elements in this approach is the guarantee of not increasing the rates despite reducing cases of unemployment. This has been seen earlier during inflation periods.

However, this new program by the Fed has made sure of steadying the pressure of a growing economy by forestalling hikes. 

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