On Wednesday, the Federal Reserve signaled that it plans to keep a key interest rate at a record low because a broad range of U.S. economic measures remain subpar.
It said it intends to keep its benchmark rate near zero as long as inflation remains under control, until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market. The Fed reiterated that it plans to keep short-term rates low “for a considerable time” after it ends its monthly bond purchases in November.
Earlier in the day, investors were cheered by news reports that China’s central bank would inject a total of 500 billion yuan ($81 billion) into the five biggest state banks over three months. Additional financial system liquidity would build on measures to strengthen growth amid a bout of weak economic data. There was no official confirmation of the reports.
Here are steps that major central banks around the world have taken to try to bolster their economies:
– FEDERAL RESERVE
Interest rates: The Fed plans to keep its key short-term rate at a record low. In a statement, the Fed says a range of job market indicators “suggests there remains significant underutilization of labor resources.”
Other policies: The Fed will make another $10 billion cut in the pace of its Treasury and mortgage bond purchases, which have been intended to keep long-term borrowing rates low. Even after the purchases end by November, the Fed will keep reinvesting its bond holdings. That means that while the Fed’s support for the economy won’t be rising, it will remain substantial.
– EUROPEAN CENTRAL BANK
Interest rates: Has cut its benchmark rate from 0.15 percent to a record low 0.05 percent. This rate determines what banks pay when they borrow from the ECB. The ECB has also cut its deposit rate — what banks pay to keep their money at the central bank — to minus 0.2 percent from minus 0.1 percent. The negative rate is an effort to nudge banks to lend by imposing a financial penalty for hoarding money in the safety of the ECB’s accounts.
Other policies: The ECB has launched an unconventional program to pump money into the eurozone economy to try to stimulate lending. It will do so by buying asset-backed securities. These securities are bonds based on mortgages, car loans and credit to businesses. By buying these asset-backed securities, the ECB hopes to give banks an incentive to make the loans from which these securities are constructed. That’s key to most European companies, which rely on banks to get credit.
– BANK OF ENGLAND
Interest rates: Has kept its benchmark rate at a record low of 0.5 percent since 2009. But the central bank’s policymakers remain divided on whether to raise rates as Europe’s third-largest economy recovers at a brisk pace.
Other policies: With the British economy gradually returning to normal and the job market improving faster than predicted, policymakers have declined to pump more money into the economy. Like Fed Chair Janet Yellen, the Bank of England’s governor, Mark Carney, has made clear that even when rates rise, they will do so only gradually.
– BANK OF JAPAN
Interest rates: The Bank of Japan and the government have unleashed an ultra-loose monetary policy, heavy government spending and economic reforms to try to sustain growth and help Japan break free from prolonged deflation — a period of falling prices — that tends to discourage spending and investment. The bank has kept its benchmark rate near zero.
Other policies: Governor Haruhiko Kuroda has told fellow central bank chiefs that the Bank of Japan plans to continue its “extremely accommodative monetary stance” until inflation has risen to the bank’s 2 percent target. He said the bank’s support could be expanded if necessary.
– RESERVE BANK OF AUSTRALIA
Interest rates: Has cut its benchmark rate to a record low 2.5 percent because of slower growth and high unemployment. The 2.5 percent policy rate is the lowest since the central bank was established in 1960. Some analysts think the Reserve Bank will eventually reduce rates further to try to invigorate the economy.
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