Fed Maintains Interest Rates, Suggests Tapering Of $120B In Monthly Asset Purchases Could Happen 'Soon'

The Federal Reserve maintained its target fed funds rate range of between zero and 0.25%. The Fed also said it may soon begin tapering its monthly asset purchases

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed said Wednesday in a statement.

The Fed said vaccination progress will continue to reduce the impact of the COVID-19 pandemic, but economic risks remain for now.

The statement comes after the U.S. added 235,000 jobs in August, significantly short of the 720,000 jobs economists were expecting. Wage growth was up 4.3% in the month, and the U.S. unemployment rate fell to 5.2%.

All 11 Fed members voted unanimously to maintain current interest rates.

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Economic Projections: The Fed has said it's taking a new “average inflation targeting” approach that may involve keeping interest rates near 0% for a while even though inflation levels have exceeded its 2% inflation target throughout the year. Fed Chair Jerome Powell has said elevated inflation levels are “transitory” as the U.S. economy recovers fully from the pandemic.

On Wednesday, the Federal Reserve released new “dot plot” economic forecasts. Nine Fed members see no change to interest rates through at least 2023. Six members forecast rates will rise by 0.25%, and three members forecast a 0.5% rise by 2023.

Federal Reserve members are projecting a 2021 U.S. unemployment rate of 4.8%, up from 4.5% in June. The committee’s 2021 GDP growth projection dropped from 7% to 5.9%. The Fed’s 2022 GDP growth rate projection ticked higher from 3.3% to 3.8%. The Fed is now projecting 2021 PCE inflation of 4.2%, up from previous estimates of 3.4%.

Markets React: The SPDR S&P 500 ETF Trust SPY traded higher by 1.1% after the Fed announcement. The yield on 10-year U.S. Treasury bonds decreased slightly on Wednesday to 1.304%, down 0.02% on the day.