Fed signals it will probably hold rates near zero for months as coronavirus batters economy

Central bank warns outbreak is causing sharp declines in economic activity and surge in job losses

Federal Reserve Chair Jerome Powell holds a news conference following the Federal Reserve's two-day Federal Open Market Committee Meeting in Washington, US, July 31, 2019. REUTERS

The US Federal Reserve has indicated it will keep its key short-term interest rate near zero for the foreseeable future to bolster the US economy, which is heading for its worst crisis since the 1930s.

The Fed will also keep buying Treasury and mortgage bonds to help keep rates low and ensure companies can continue to lend easily to each other amid near-paralysis of the economy, caused by the coronavirus.

The central bank did not specify any amounts or time for its bond purchases.

“The Federal Reserve is committed to using its full range of tools to support the US economy in this challenging time,” the regulator said on Wednesday after a two-hour video conference.

It was the bank's first meeting since it slashed rates to near zero on March 15.

It said the coronavirus outbreak and measures to contain it are “inducing sharp declines in economic activity and a surge in job losses".

The Fed said the pandemic “poses considerable risks to the economic outlook over the medium term".

The dollar fell in value at the news. The dollar index against a basket of currencies fell 0.32 per cent to 99.544, but held above the two-week low of 99.44 on Tuesday.

The dollar has weakened more than 3 per cent after a more than three-year peak of 102.99 in late March as global central banks launched massive stimulus measures to protect economies.

Widespread business shutdowns have caused about 30 million workers in the US to lose their jobs over the past month and a half.

As layoffs mount, retail sales are sinking, along with manufacturing, building, home sales and consumer confidence.

The Fed has mounted an unprecedented push to limit the economic harm of the virus, which has plunged the global economy into recession.

During two emergency meetings in March, it cut its benchmark rate to a range between zero and 0.25 per cent.

It has also announced nine new lending programmes to pump cash into financial markets and provide support to large and medium-sized businesses, as well as cities and states.

Meanwhile, the US Commerce Department released grim news about the US economy on Wednesday.

Economic output shrank at a 4.8 per cent annual rate in the first three months of the year, in the worst showing since the Great Recession struck near the end of 2008.

But US President Donald Trump has been optimistic about the economy bouncing back after the coronavirus pandemic.

In his address on Wednesday, Mr Trump said the country’s economy would rebuild quickly.

His delivered the speech hours before the Commerce Department delivered its news.

It also said that gross domestic product posted a quarterly drop for the first time in six years.

In more positive news on Wednesday, US stocks rallied to a seven-week high on revenue figures that were better than estimated for Google’s parent company Alphabet, and hopes for a coronavirus treatment, while oil surged.

Gilead Sciences said its experimental drug helped Covid-19 patients to recover more quickly.