Fed Expects Interest Rates to Hold Near Zero Through 2022
The Federal Reserve?held the federal funds?rate at the current 0% to 0.25% range and said it intends to keep its benchmark rate near zero through 2022 as the central bank continues to deploy policy tools to underwrite an emerging recovery for the U.S. economy from the COVID-19 pandemic.
Specifically, the Fed noted that it will continue its quantitative easing policy, purchasing on a monthly basis $80 billion in Treasuries and $40 billion in mortgage-backed securities, which is helping to support low mortgage interest rates and housing demand. Home building, and housing in general, will be a leading element of the recovery, as foreshadowed by?two months of gains for mortgage applications?and better than expected?newly-built home sales.
The Fed is projecting a 6.5% decline for GDP for 2020 (NAHB is forecasting a 6.2% drop) due to government-mandated virus mitigation efforts that led to a sharp, sudden stop in economic activity. Like other outlooks, the nation’s central bank is forecasting a strong bounce back in 2021, with growth for that year coming in at a 5% rate.
The fact that the Fed indicated it expects to keep the federal funds rate near zero for the next two years is broadly positive for home building and housing markets. The Fed’s messaging is clear: it will do whatever it takes to return labor markets and the economy to where they were prior to the outbreak of the pandemic. In particular, the Fed is making sure that credit is available for households and businesses to ensure the smooth operation of markets. Housing and home building are important elements for the transmission of monetary policy and will thus feature as front-line sectors during a recovery.