Fed holds rates; NAFCU expects liftoff will occur no earlier than 2023

The Federal Open Market Committee (FOMC) Wednesday maintained the federal funds target rate near its current range of 0 to 0.25 percent. Of note, the committee upgraded its statement on the economy, stating “progress on vaccinations and strong policy support, indicators of economic activity, and employment have continued to strengthen.”

The committee noted the sectors most adversely affected by the pandemic have “shown improvement but have not fully recovered.” In addition, the committee remained insistent that inflation has risen due to temporary factors and will not take action until inflation remains higher for a longer time.

“In its July statement the FOMC began preparing markets for tapering of its asset purchases,” said NAFCU Chief Economist and Vice President of Research Curt Long in a new Macro Data Flash report. “Those purchases serve primarily to communicate the committee’s intentions about future rate hikes.

“While tapering purchases does not mean that liftoff will follow soon thereafter, it does remove one hurdle toward that end,” added Long. “But given the current pace of asset purchases and the likelihood that it will take a considerable amount of time to wind down those purchases, the odds still favor liftoff occurring no earlier than 2023.”

 

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