The absence of inflation gives additional margins in the event of a negative shock. The Fed is in a comfortable position
The Fed is optimistic about the profile of the US economy. It considers that the unemployment rate could drop further next year (3.5% vs 3.6% this year) without inflation accelerating. It also perceives less uncertainty on the evolution of activity over a finite horizon.
The central bank says it keeps its monetary policy unchanged. The benchmark rate will remain between 1.5 and 1.75%. The Fed is implementing its “pause” option after three rate drops since the end of July.
In the projections made by monetary policy committee members , no change is expected in 2020. But far from thinking that the economy will slow down in 2021 and 2022, these same members assume an increase in 2021 and one again in 2022.
The absence of expectations of higher inflation leaves room for lower rates in the event of a negative shock to activity.
The US central bank is in a rather comfortable position. The absence of inflation and of rising wages and the feeling that this will not change rapidly give it the possibility of adopting an accommodative strategy that supports the expansion and extends this never-ending cycle.
