Fed new strategy likely to keep short-term rates low for years and USD to weaken – Charles Schwab

Kathy Jones, Chief Fixed Income Strategist at Charles Schwab point out that the new strategy from the Federal Reserve reinforces their perspective for low rates for a longer period of time and a weaker US dollar. 

Key Quotes: 

“The change suggests that the Fed will likely maintain its zero-interest-rate policy for several more years until it sees inflation rise, rather than acting pre-emptively to address inflation expectations.”

“Powell’s speech is important in that it codifies the Fed’s approach to policy. However, it isn’t a big change from the way the Fed has been operating for a while now. It will help set expectations about policy by identifying the key factors that are important to the Fed. However, monetary policy can only do so much. The biggest risk to the policy shift is that long-term rates could rise on the assumption that the Fed would not respond to inflation fast enough to contain it.”

“The Fed’s policy announcement has reinforced our view. We look for the Fed to keep short-term interest rates low for several more years, and the U.S. dollar to weaken further over time.”