The US Federal Reserve left interest rates near zero and vowed to use all its tools to support the recovery from an economic downturn that Chairman Jerome Powell called the most severe “in our lifetime.”
“The path forward for the economy is extraordinarily uncertain, and will depend in large part on our success in keeping the virus in check,” he told reporters in an online press conference on Wednesday after the Fed left interest rates near zero.
He sounded a dour tone about how long a road is ahead to get back to where the country was only months ago, adding that more fallout from the COVID-19 pandemic still lies ahead.
“Even if the reopening goes well — and many, many people go back to work — it is still going to take a fairly long time for parts of the economy that involve lots of people getting together in close proximity” to recover, he said. “Those people are going to need support.”
Powell said that not all sectors of the economy were weakening, citing the housing sector as one bright spot.
However, on balance, it looks like the data “are pointing to a slowing in the pace of the recovery,” he said, though it was too soon to say how large — or sustained — this pause would last.
High-frequency economic indicators are pointing to a stall in the rebound as consumers hold back from activities like dining out and air travel, which had started to bounce back when the earlier wave of outbreaks dissipated.
In its statement announcing the policy decision, the Federal Open Market Committee (FOMC) repeated that the pandemic “poses considerable risks to the economic outlook over the medium term” and that the federal funds rate would remain near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Powell told reporters that supporting the recovery would need help from both monetary and fiscal policy, in a nod to ongoing negotiations among lawmakers and US President Donald Trump’s administration in Washington to refresh taxpayer support before current assistance runs out.
The vote, to leave the federal funds target rate in a range of 0 percent to 0.25 percent, was unanimous.
The FOMC also reiterated its pledge to increase its holdings of US Treasuries and mortgage-backed securities “at least at the current pace” over coming months.
In a separate statement on Wednesday, the Fed said it extended its US dollar liquidity swap lines, and the temporary repurchase agreement facility for foreign and international monetary authorities through March 31.
Powell and his FOMC colleagues have kept their benchmark rate pinned near zero since the pandemic’s onset in March and rolled out several emergency lending programs geared toward fostering liquid trading conditions in financial markets.
Still, Powell made it clear that the Fed was not pinning its hopes on a medical breakthrough.
“Our job is not to plan for the upside case. The upside case — we’ve got that covered,” he said.
Rather, the Fed will “hope for the best and plan for the worst,” he said.
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