The Federal Reserve does not view going down the path of negative interest rates as an attractive option in the United States, but will likely keep interest rates at near zero range until it sees sustainable inflation, Vice Chairman Richard Clarida said on Monday
WASHINGTON (Pakistan Point News / Sputnik - 31st August, 2020) The Federal Reserve does not view going down the path of negative interest rates as an attractive option in the United States, but will likely keep interest rates at near zero range until it sees sustainable inflation, Vice Chairman Richard Clarida said on Monday.
"We do not see negative policy rates as an attractive policy option in the US context," Clarida in a speech elaborating the Federal Reserve's new monetary policy framework announced by Chairman Jay Powell last week. "A low unemployment rate by itself, in the absence of evidence that price inflation is running or is likely to run persistently above mandate-consistent levels or pressing financial stability concerns, will not, under our new framework, be a sufficient trigger for policy action."
President Donald Trump had criticized the Federal Reserve before the novel coronavirus outbreak in March and suggested that it implements negative interest rates to further boost economic growth, but Powell had rejected those overtures.
Last week, Powell said the Federal Reserve intended to target higher inflation on the average over time to help economic and labor market recover from crises such as the novel coronavirus pandemic. The central bank had for years pinged rate hikes on an outright 2 percent inflation rate target, but realized this was not ideal in severe economic downturn situations such as during the pandemic, Powell added.
"Following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time," Clarida said about the Federal Reserve's new monetary policy framework.
The Federal Reserve has kept interest rates in the zero to 0.25 percent range after coronavirus-related lockdowns triggered two consecutive quarters of sharp economic declines that left the United States with its worst recession in history. US GDP fell around 5 percent in the first three months of 2020 and nearly 33 percent in the April to June period. Unemployment stands at around 10 percent.
