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Federal Reserve System
Economy

Why the Federal Reserve System (FRS) refused to raise interest rates

06.06.2020
2 min read

Recent changes in the world market and analysts’ forecasts force us to reconsider the strategy for the nearest future. The Federal Reserve System (FRS) in the next report pointed to the reduction of economic growth rates, reduction of investment volumes and expenditures of the population.

How the Federal Reserve System (FRS) assesses the US economy

US Federal Reserve experts stressed that the base rate on funds will not change, provided that there are no significant fluctuations in the market. Now it ranges from 2.25 to 2.5%. This decision was reached after the meeting of the organization participants. This result was not a surprise, but was the result of a statement from the Central Bank. Its representatives announced that they had stopped taking measures to strictly control the monetary policy due to the slowdown of the US economy. Prior to that, the bank announced plans to increase credit rates twice. In addition, the country’s central financial institution refused to take measures that restrain economic development. Their list also includes the reduction of the balance of funds to $4 trillion.
Analysts of the Federal Reserve System pointed to the general weakening processes in the country. According to the new forecast, GDP and inflation are expected to be lower than it was announced in December, and the unemployment rate will rise significantly.
The U.S. economy is expected to grow by 2.1% (the previous forecast was 2.3%), while inflation is expected to be at 1.8% instead of 1.9% announced in December. The unemployment rate is 3.7%.
According to officials, such analysis results will have little impact on the overall situation in the country. Despite the slowdown, the indicators will not cause much damage to the economy. Besides, the labor market will hold stable positions, although its activity will slow down a little.

Federal Reserve System

Experts are optimistic about the future, although they are aware of the risks. Declining investment in fixed assets is worrisome against the backdrop of lower spending of citizens on households. But the Federal Reserve hopes that this situation will be leveled off by the second quarter of next year.
After the official release of the Federal Reserve’s forecast, the country’s stock market benchmark indexes showed a jump in growth, which stabilized during the trading session. Standard & Poor’s index, which includes 500 large corporations, increased by 0.1% on the New York Stock Exchange. It amounted to 2836.
An unfavorable situation is observed with treasury bonds. The yield on them fell to 2.5%, and according to traders’ estimates, the fall may be expected in the future. One of the factors of this situation is the weakening of the national currency.

Tags: Economic
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