Federal Reserve likely to keep interest rates near zero

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Federal Reserve likely to keep interest rates near zero

The U.S. economy is likely to hold interest rates near zero in its two-day policy meeting this week, even with a recovering economy set to take off in the coming months as more Americans venture out to shop, eat at restaurants and travel.

Fed officials are not expected to announce any new actions when the meeting concludes Wednesday afternoon and will almost certainly leave the federal benchmark rate below 0 point before it leaves a range of 0% and 0.25%, where it has been for the past year.

In March, the U.S. Central BankU.S. Central Bank slashed interest rates to near zero as the pandemic forced an unprecedented shutdown of the economy.In a month, it also started buying $120 billion in bonds, a policy designed to keep the credit supply cheap and to help the country recover from the worst economic downturn since the Great Depression.

At a news conference Wednesday after the Fed's policy meeting is expected to acknowledge the brightening economic outlook and reiterate that the US economy remains a long way away from the levels of pre-crisis level.There are approximately 8.4 million fewer jobs than there were before the pandemic, and the unemployment rate is currently at 6%, well above the half century low it settled in February.Inflation remains consistently below the Fed's 2% target.

The Federal Reserve seems committed to keeping interest rates as low as it can for as long as it can, and we expect the Fed to continue this sentiment when it meets this week, said Scott Clemons, BBH chief investment strategist.We think the Fed will keep monetary policy easy for the balance of 2021 because it considers whether the economic rebound is durable, or more a function of massive government spending.

Most policymakers said in their March projections that they expect interest rates to stay close to zero through 2023.Some 7 of the 18 Fed officials at the meeting said they expect to start raising interest rates in 2022 or 2023 from December, when just five predict a rate hike.

This combination of healthy monetary policy, expansionary fiscal policy and strong household balance sheets has given rise to worries of overheating, Clemons said.We think these concerns are overdone, especially when earnings estimates continue to increase and provide more fuel to markets.

Although the Federal funds rate is not what consumers pay, some banks and credit unions will reduce their savings rate during periods of low interest rates, making it a good chance for consumers to save money.

For most borrowers, the low interbank lending rate, which affects borrowing costs, including things like auto loans and credit cards is good news.Even a slightly lower rate for both can mean thousands of dollars in savings for consumers.

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