Fed Chairman Jerome Powell. (Photo: AP)

Lower for longer. That's been theFederal Reserve's approach to interest rates for quite some time,but today the central bank indicated it will be holding the federalfunds rate within its current 0–0.25 percent range through2022.

In a statement accompanying itslatest economic projections, the Fed said it expected to maintainthat range "until it is confident that the economy has weatheredrecent events and is on track to achieve its maximum employment andprice stability goals."

"Recent events," of course,refers to the coronavirus pandemic that "is causingtremendous human and economic hardship across the United States andaround the world, inflecting sharp declines in economic activityand a surge in job losses," and is expected to continue to hurt theeconomy.

The Fed decision was unanimous,and its statement was nearly identical to one released at its lateApril meeting, but it did deviate somewhat, setting a floor for itspurchases of Treasuries and mortgage-backed and agency securities.The Fed noted it would increase its holdings of those securities"at least at the current pace to sustain smooth market functioning"and would "continue to offer large-scale overnight and termrepurchase agreement operations."

In its economic projections,based on those of individual Fed board members and Fed bankpresidents, the Fed projected a median outlook for real GDP of –6.5percent this year, followed by growth of 5 percent and 3.5 percentin the next two years, respectively. Unemployment was projected ata median 9.3 percent in 2020, falling to 6.5 percent in 2021 and5.5 percent in 2022. Core PCE inflation was projected at 1.9percent this year and 2 percent for the following twoyears.

These projections"underscore that Fed will be keepingpedal to the metal for the foreseeable future, certainly throughthe end of this year," said Kevin Flanagan, head of fixed incomestrategy at WisdomTree.

That commitment "is a modest positivefor stocks and a negative for the dollar," said Jeffrey Kleintop, chief global investment strategist at CharlesSchwab & Co. The Fed sees "lingering weakness in theeconomy," yet its 9.3 percent yearend unemployment rate projectionis "significantly lower than the current 13.3 percent (and in thesingle digits)," said Kleintop.

Askedabout that surprisingly low May jobless rate number in his pressconference on Wednesday, Fed Chairman Jerome Powell said it was"nice to see" and may indicate the job market has hit bottom, butthat remains unknown.

The S&P 500 index retreatedon the Fed's move, then pared its losses to close at 3,190, down0.53 percent. The 10-year bond yield, which had been rising formuch of last week, finished the day at 74 basis points.

"The stock market needs somethingnew to push higher," and it didn't get that today from the Fed,said Patrick Leary, chief market strategist atIncapital.

Investors had been speculatingbefore Wednesday's Fed decision that the central bankmight  introduce new policy initiatives such as adefinitive schedule for its securities purchases, such as a regularmonthly purchase amount, or a policy of yield curve control. Theygot neither.

Powell said these possibilitieswere discussed by Fed policymakers and will be considered inupcoming meetings as the central bank learns more about thetrajectory of the U.S. economy.

"We will do whatever we can, andfor a long as it takes, to provide relief and stability and ensurethe recovery is as strong as possible," Powell said.

From: ThinkAdvisor