The Fed's latest decision, the last important meeting policy statement before the end of the year, and the United States welcomes the general election and holidays, so this statement is extremely important.
The FED statement stated that the keeping interest rate effectively at zero levels as long as is necessary to support economic activity. The statement implied that interest rates would not be raised before 2023. It emphasized that the Fed has not exhausted its ammunition and that there are still many stimulus tools to boost the economy, loan tools, balance sheets and forward guidance to promote employment maximization and price stability.
Strive to reach the target of 2% in the long-term inflation rate, and even strive for a long-term average of more than 2% for a period of time. A moderate inflation rate of over 2% should be a very strong statement supporting economic activity. The pace of the US economic recovery is likely to slow down, so the government will expand fiscal expenditure to continue to support it. He also called on Congress to approve more relief bills, maintain stable market operations, help create loose financial conditions, and rescue families, businesses, and local governments that are struggling during the epidemic, so that economic activities and employment rates can rebound.
Fed’s Announcement Effect on the Market
Fed focused on keeping U.S. interest rates at current record lows until employment and inflation reach its targets, although dollar strength is likely to be temporary. Low U.S. interest rates make the dollar less attractive to overseas investors, they may be able to pick up higher returns by holding other higher-yielding currencies.
During difficult economic times, the Federal Reserve often lowers the Federal Funds Fate to activate the economy: low interest rates mean lower borrowing costs for consumers and businesses, which is great for borrowers and may prompt investors to invest their funds in non-interest-bearing financial assets, such as stocks and digital currencies.
Investing in interest-bearing investments, such as bonds, will reduce the willingness to invest financially because the interest generated by the interest is not large. Dow Jones was encouraged by the announcement, but stocks slide as tech meltdown continues and oil plunges. Now even with the recent correction, the stock market is still performing well. Long-term investors should have more confidence in the market than ever before.
A lower interest rate makes it cheaper for investors to hold gold; besides, gold may be used as a hedge against global economic uncertainty, although gold investment does not provide any interest return.
Although the Fed hopes to support economic recovery, provide more stimulus packages and financial assistance; however, this requires further congressional support. Hope to see the labor market get back to its former healthy condition.
The market realizes that the FED has not taken any substantial and positive action to adjust the asset purchase plan. Moreover, the actual ammunition given is far from enough to reverse the market. FED just wants to use tools to support economic recovery first. Therefore, we still have to wait and see how the FED and the decision-making of the U.S. Congress are for taking the next step.