Business & Economy

Fed paints somber economic picture, leaves rates near zero until 2022

Washington, Jun 10 (efe-epa).- The coronavirus pandemic this year will cause a contraction in the US GDP of 6.5 percent and an unemployment rate of 9.3 percent, the Federal Reserve said Wednesday in its first economic projections since the Covid-19 outbreak, going on to say that it will keep interest rates at about zero percent until 2022.

“We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates,” Fed Chairman Jerome Powell told reporters during Wednesday’s tele-press conference after the close of the two-day Fed monetary policy meeting.

The US central bank, which Powell heads, forecast an economic rebound of 5 percent in 2021 and a drop in the unemployment rate to 6.5 percent, although it anticipates that inflation will remain below its annual objective of 2 percent until the end of next year.

In a statement approved unanimously by all members of the Fed’s Open Market Committee, the entity said that the coronavirus and the measures taken to protect the public health have created sharp declines in economic activity and an increase in job losses.

Looking toward the future, Powell warned that 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.”

He said that the road back to a more stable economic situation will be long, noting that more than 20 million people have lost their jobs amid the turmoil caused by the coronavirus pandemic.

The US unemployment rate stood at 13.3 percent at the end of May, down from 14.7 percent in April, a situation that has been interpreted by some analysts as the start of an economic recovery.

Powell said that the decline in unemployment in May came as a “positive surprise,” but he added that more data is needed to be able to verify that the rate is stabilizing.

The Fed in mid-March cut interest rates sharply to between zero and 0.25 percent at an emergency meeting.

In addition, it launched several massive rounds of liquidity injection into the economy to counteract the severe economic blow dealt by the paralysis of economic activity due to movement restrictions and social distancing, measures widely taken by state and local governments to try and limit the spread of the coronavirus.

Powell reiterated on Wednesday that he will continue using all available tools, including his authority to grant emergency loans to companies, states and municipalities.

“To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning,” the FOMC said in its statement.

All in all, the markets interpreted Powell’s remarks cautiously.

“There is no way to know when and how many businesses can safely reopen while maintaining social distancing and preserving the safety of their workers and customers,” said Diane Swonk, head economic for Chicago-based Grant Thornton investment firm.

Meanwhile, Powell praised the “fast and … forceful” reaction of Congress in approving an economic rescue package in April valued at $3 trillion, the largest in history.

But he warned that, given the current “unprecedented” crisis, it is probable that another fiscal stimulus package will be needed in the near future to help households and companies during this unusual period.

The next meeting of the Fed is scheduled for July 28-29.


Related Articles

Back to top button