U.S. Fed likely to keep Fed funds rate on hold in April, to remain at lower bound for long time

The FOMC is set to meet tomorrow for its meeting. According to a DNB Markets research report, the U.S. Fed is likely to keep the Fed funds rate on hold at 0.00-0.25 percent. Also, it is likely to continue to signal open-ended QE and to maintain the lending program. Nevertheless, the need for additional stimulus might possibly be evaluated, and might have to be seen in relation to the economic prospects, fiscal stimulus and the functioning of the financial markets.

Fed cut rates two consecutive times by a total of 150 basis points. The signal rate is back at what is seen as the lower bound, which is the 0–0.25 percent range. While the two cuts came rapidly, both before the ordinary March meeting was to be held, the overall reduction was much smaller than has been the case in the previous recessions. It appears from earlier communication that the Fed will not lower the rate further into negative territory.

“In our view, the Fed will most likely signal that the Federal funds rate will stay at the lower bound for a long time”, stated DNB Markets.

The Congressional Budget Office (CBO) had recently released new forecasts indicating a fall in GDP of 12 percent year-on-year in the second quarter and 5.6 percent in the fourth quarter of 2020. Meanwhile, the CBO anticipates that the jobless rate will rise to 14 percent in the second quarter, with the annual average of 11.4 percent for the whole of 2020.