Fed stresses support for economic recovery threatened by coronavirus resurgence

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The Federal Reserve signaled on Wednesday that it would continue to take aggressive action to support the U.S. economy during the coronavirus pandemic, as an increase in cases and renewed restrictions on some businesses threaten to derail the country’s gradual recovery.

The US central bank, as was widely expected, kept the benchmark federal funds rate in a range of 0% to 0.25%, where it has been since mid-March. The Fed reiterated previous predictions that rates will stay close to zero “until it is satisfied that the economy has weathered recent events and is on track to meet its maximum employment and stability targets. prices “.

FED POWELL SAYS US ECONOMY MAY NEED MORE POLITICAL HELP TO AVOID ‘PROLONGED’ RECESSION

Previous guidance from the Fed’s June meeting shows policymakers expect interest rates to stay close to zero until 2022.

Policymakers have also pledged to maintain monthly purchases of treasury bills and mortgages by the central bank. In the past four months, the Fed has injected nearly $ 2.8 trillion into the economy, an unprecedented amount, and its balance sheet has soared to nearly $ 7 trillion.

The Fed noted that the economy had strengthened since March and April, when American life came to a standstill to mitigate the spread of COVID-19. But he warned that the virus would continue to dictate the speed of the nation’s turnaround.

“The current public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and pose significant risks to the medium-term economic outlook,” policymakers said.

NEARLY HALF OF JOBS IN THE UNITED STATES LOST TO CORONAVIRUS COULD BE PERMANENTLY MEMBERS, POLL FOUND

President Jerome Powell had previously warned that a full recovery hinged on controlling the virus.

“Until the public is convinced the disease is contained, full recovery is unlikely,” he said in June during testimony to lawmakers.

A recent spike in COVID-19 infections and new shutdowns in several US states, including Florida and California, have raised concerns that the recovery is stalling. Last week, the number of Americans claiming unemployment benefits increased for the first time in 16 weeks, as the number of confirmed cases of COVID-19 in the country exceeded 4 million.

“The job market has a long way to go to recover,” Powell told reporters at a virtual press conference Wednesday. “Even with two very strong months of job creation, 7.5 million jobs [May and June], we still have 14 million unemployed. It’s a long way to go. ”

The renewed threat of yet another round of layoffs emerges just as an additional $ 600 a week in unemployment benefits, which are part of the $ 2.2 trillion CARES law passed in March, expires. Democrats and Republicans launched negotiations this week on another virus relief plan, which could include a second stimulus check and the extension – but a substantial cut – of unemployment aid that has just expired .

FED OUTLOOK BECOMES GLOOMIER AS THE VIRUS SPREADS

The Fed has already taken a series of extraordinary measures to support the economy, including cutting interest rates to near zero in March, buying an unlimited number of Treasuries (a practice known as name quantitative easing) and the launch of nine loan facilities to ensure that credit flows. to Wall Street businesses and banks.

On Tuesday, the central bank said it would extend seven of those programs, which were previously scheduled to expire at the end of September, until the end of the year.

Most analysts expect that the Fed’s next economic cushioning move will be to provide specific indication of conditions – like unemployment and inflation – that it wants to see before raising rates. interest, a tool known as “forward guidance”. The next central bank meeting will take place in September.

“The focus is now on the September FOMC meeting, when investors might expect more action, which could include more explicit forward guidance,” said Jason Pride, director of wealth investments. private at Glenmeade.

Some members of the Fed have indicated that they would like to clarify how long the near-zero rates could last, alerting markets that after that time they could be raised again, according to recent meeting minutes.

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