Officials at the Federal Reserve are contemplating their next steps after announcing a new approach to interest rate setting last month, one that could lay the groundwork for longer periods of low unemployment and rock-bottom borrowing costs.
But it may be too soon for Fed officials to make big changes to their policy setting because they might need more time to coalesce around their next steps, economists said.
Here’s what to expect at the Fed’s September meeting, which concludes Wednesday:
The Fed slashed interest rates to near zero in March, and it is broadly expected to leave them there for years. Officials are now debating whether to concretely communicate their future plans for rates by promising that they will not lift them until inflation, employment or both cross some preset threshold.
They are also discussing when and how to update their bond buying program. Since March, the central bank has been purchasing large amounts of Treasury and mortgage-backed securities to keep markets functioning smoothly, but officials have signaled that they will eventually shift that program to focus instead on stimulating economic growth.
The central bank’s Summary of Economic Projections, a document in which officials anonymously forecast where interest rates, inflation and unemployment will be in coming years, will get a refresh.
Any changes could add a little more oomph to the central bank’s policies, potentially helping to fuel the recovery from the coronavirus-induced economic crisis.
“It feels like there’s going to be a forward lean from them — there’s a refinement coming,” said Julia Coronado, a former Fed economist and founder of MacroPolicy Perspectives. Still, she does not expect either threshold-based forward guidance or a big tweak to the bond buying program just yet. “This is a big and diverse committee, these are complicated issues, and it is uncharted territory.”