Fed holds rates near zero but sees economy improving in 2021

Key takeaways from Fed’s rate decision

NatAlliance Securities Global fixed income head Andy Brenner and NatWest Markets co-head of global economics Michelle Girard weigh in on how factors like the Federal Reserve, the presidential election and possible coronavirus stimulus are impacting the markets and the economy.

The Federal Reserve said during its final meeting of the year on Wednesday that it would continue holding interest rates near zero and underscored its promise to aid the economy's recovery from the coronavirus pandemic, but painted a brighter outlook for 2021.

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The U.S. central bank, as widely expected, held the benchmark federal funds rate at a range between 0% and 0.25%, where it has been since mid-March.

Updated guidance shows that Fed officials expect rates to remain near zero through 2023.

But officials also changed their projections to reflect a smaller decline in the nation's GDP; they now anticipate real GDP to fall just 2.4% this year, compared to a a decline of 3.7% predicted in September. On the unemployment side, the Fed forecast the rate will fall from 6.7% to 5% by the end of 2021.

The economic outlook has changed drastically since policymakers met at the beginning of November with the approval of one COVID-19 vaccine that's already being administered across the country and optimism rising that Congress will pass another round of emergency aid before the end of the year. Still, coronavirus infections are surging across the nation, prompting state and local governments to issue new lockdown measures.

The meeting caps a volatile year for the economy and the Fed, which sprang into action at the beginning of March to prevent an economic collapse, slashing interest rates, launching a dozen lending facilities to support the credit market and injecting nearly $2.8 trillion into the economy, an unprecedented amount.

The rate-setting Federal Open Market Committee said in its statement Wednesday that it would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

This is a developing story. Please check back for updates.

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