Fed repeats pledge to keep rates low amid coronavirus fallout

All members of policy-setting committee voted to leave target range for short-term interest rates between 0% and 0.25%

US Federal Reserve chairman Jerome Powell. Reuters
US Federal Reserve chairman Jerome Powell. Reuters

The US Federal Reserve on Wednesday left rates at near-nil and repeated a pledge to use its “full range of tools” to support the economy as it tries to recover from the fallout from the Covid-19 pandemic.

“The path of the economy will depend significantly on the course of the virus,” the central bank said after its two-day policy-setting committee meeting.

“The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

The committee meeting was held online.

“Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year,” the Fed said.

All members of the committee voted to leave the target range for short-term interest rates at between 0 and 0.25 per cent, where it has been since March 15 when the US was hit by the pandemic.

“The committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the Fed said.

“The path of the economy will depend significantly on the course of the virus.”

Fed officials had been expected to spend some of the meeting debating whether and how to strengthen their forward guidance, perhaps by promising there would be no changes to interest rates until the unemployment and inflation rates meet set benchmarks.

They gave no hint of such a change, which many Fed analysts expect will not come until the September policy meeting.

Fed Chair Jerome Powell is scheduled to hold a briefing at 2.30pm EDT.

The Fed also said it would continue to buy at least $120 billion (Dh440.75bn) in US Treasuries and mortgage-backed securities each month to steady the financial markets.

It renewed its low-rate pledge a day before a government report was expected to show a record 34 per cent drop in annualised economic output last quarter.

That was mainy caused by authorities imposing lockdowns that shut businesses and kept people home in a bid to slow the spread of Covid-19.

Fed policymakers had hoped those measures would help to contain the virus, allowing the economy to bounce back quickly, even as they expressed concern over the possibility that infections could surge again and slow the recovery.

The US central bank has rolled out nearly a dozen new lending and credit programmes to fight the economic fallout from the epidemic.

But the immediate outlook depends largely on where infection numbers go from here and how much more fiscal support legislators deliver in the meantime.

Since their last policy meeting in June, the epidemic has intensified, with an average of about 65,000 new cases detected each day, about three times the pace in mid-June.

Deaths from Covid-19, the respiratory illness caused by the virus, are also on the rise in America, prompting states from California to Florida to impose new economic restrictions.

Job growth, which had been unexpectedly strong in May and June, now appears to be slowing. Consumer confidence has also taken a hit.

Updated: July 29, 2020 11:37 PM

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