Breaking: Fed sees economy shrinking at a softer pace in 2020 than previously forecasted

The Federal Open Market Committee (FOMC) on Wednesday announced that it left the benchmark interest rate, the target range for federal funds, unchanged at 0%-0.25% as widely expected. 

In its updated Economic Projections, the FOMC said it expects the gross domestic product (GDP) to contract at a softer pace than the previous forecast of 6.5% in 2020 and sees unemployment at 7.6% at year's end, compared to 9.3% in June projection.

Follow our live coverage of the FOMC decision and the market reaction.

Market reaction

The US Dollar Index edged slightly lower with the initial reaction and was last seen losing 0.1% on the day at 92.98.

Fed's Economic Projections as summarized by Reuters

"Median view of appropriate fed funds rate at end-2020 0.1% (prev 0.1%)."

"Median view of fed funds rate at end-2021 0.1% (prev 0.1%)."

"Median view of fed funds rate at end-2022 0.1% (prev 0.1%)."

"Median view of fed funds rate at end-2023 0.1%."

"Median view of fed funds rate in longer run 2.5% (prev 2.5%)."

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

"One policymaker sees lift-off in fed funds rate from zero in 2022, four see liftoff in 2023."

"2020 median jobless rate 7.6% vs 9.3% in June projection, reaches 4.0% in 2023."

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

Median Fed forecasts do not see inflation rising above 2% before 2023."

"Median Fed long-run forecasts - GDP +1.9% (prev 1.8%); jobless rate 4.1% (prev 4.1%); PCE Price Index 2.0% (prev 2.0%).

Key takeaways from policy statement as summarized by Reuters

"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 US economy."

"Fed seeks to achieve maximum employment, inflation at 2% rate over the longer run."

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

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

"Fed will maintain treasury and agency-backed securities purchases at least at the current pace to help foster accommodative financial conditions."

"Fed is prepared to adjust monetary policy stance as appropriate if risks emerge that could impede the attainment of the Fed’s goals."

"Assessments will take into account public health, labor market conditions, inflation pressures, inflation expectations and financial and international developments."

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