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FOMC: Rates staying near zero until inflation lodges over 2%

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NEW YORK (Reuters) - The Federal Reserve kept interest rates pinned near zero on Wednesday and promised to keep them there until inflation is on track to “moderately exceed” the U.S. central bank’s 2% inflation target “for some time.”

The change in guidance is part of the Fed’s monetary policy shift announced last month that is aimed to offset years of weak inflation and allow the economy to keep adding jobs for as long as possible. STORY:

STATEMENT: ECONOMIC FORECASTS:

MAIN POINTS:

** U.S. Federal Reserve maintains key overnight interest rate in target range of zero to 0.25 percent

** Median forecast of Fed policymakers is for rates to stay near zero through 2023

** Fed sees GDP declining in 2020 less than previous forecast but growing more slowly in 2021 and 2022 than previously forecast

** Fed expects to maintain current fed funds rate until labor market has reached levels consistent with assessments of maximum employment, and inflation has risen to 2% and on track to exceed that for some time

** Fed repeats it is committed to using its full range of tools to support the U.S. economy

** Fed says it seeks to achieve maximum employment, inflation at 2% rate over the longer run

** Fed says it will aim to achieve inflation moderately above 2% for some time so it averages 2%

** Fed says will maintain Treasury and agency backed securities purchases at least at current pace to help foster accommodative financial conditions

** Fed repeats the path of the economy will continue to depend significantly on the course of the coronavirus outbreak

** Fed vote in favor of policy was 8-2

MARKET REACTION:

STOCKS: U.S. stocks extended gains; the S&P 500 .SPX was last up 0.58% BONDS: The 10-year U.S. Treasury note yield US10YT=RR rose to 0.6756% and the 2-year yield US2YT=RR hovered at 0.139%

FOREX: The dollar index =USD slipped a bit more and was off 0.14%

COMMENTS:

JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON DC

“The dollar is little changed from the statement and the projections. Maybe we’ll get more of a jolt when Powell speaks.

“The Fed really underscored its dovish stance and how inflation holds the key to the policy outlook. Overall it as very dovish. But what’s keeping a floor under the dollar so far is that the Fed upgraded its economic forecast for GDP for 2020. The new projection is -3.7%. That’s not as bad as (the projection) from June.”

“The Dow is a little strong post Fed. What stocks are going to cheer is that the Fed has no plans to raise rates through 2023. Higher rates would make the dollar more appealing.”

“With the euro a little weaker the market is taking a kind of buy-the-rumor-sell-the-fact scenario. The Fed while dovish largely met market expectations.”

“Powell’s presser could have curveball questions that could elicit more of an FX reaction.”

DAVID CARTER, CHIEF INVESTMENT OFFICER, LENOX WEALTH ADVISORS, NEW YORK

“We’ve come a long way from Trump saying the Fed is “loco” for raising rates, the Fed is clearly now offering unbridled support for markets and the economy. Everybody’s trying to understand notion of the average inflation target. It will be helpful if Powell provides more detail in his Q&A session.“

“The 8-2 vote is relevant. It’s somewhat expected that the vote was not unanimous as the current policy is so historically aggressive unprecedented. It makes sense that some members are reluctant to continue this indefinitely.”

“This is the Fed’s last meeting before the election, so it’ll be interesting to see if they cover any new ground because this is their last shot.”

Compiled by Alden Bentley

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