Home / News / World /  Fed holds zero rates as Jerome Powell warns coronavirus spike hitting economy

Federal Reserve Chair Jerome Powell warned the U.S. faced the most severe economic downturn “in our lifetime" as the central bank left interest rates near zero and vowed to use all its tools to support a recovery.

“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 a virtual press conference Wednesday after the Fed left interest rates near zero. “Indeed, we have seen some signs in recent weeks that the increase in virus cases, and the renewed measures to control it, are starting to weigh on economic activity."

In its statement announcing the policy decision, the Federal Open Market Committee repeated prior language 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 the Trump administration in Washington to refresh taxpayer support before current assistance runs out.

Markets Steady

The dollar briefly extended its decline following the decision, while U.S. stocks maintained their gains and gold remained buoyant. The 10-year Treasury yield was steady on the day around 0.58% as the U.S. bond curve steepened.

The vote, to leave the federal funds target rate in a range of 0% to 0.25%, was unanimous. The FOMC also reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities “at least at the current pace" over coming months.

In a separate statement Wednesday, the Fed said it extended its dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities through March 31, 2021.

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.

That aggressive action has helped to calm investors. But progress toward recovery has been complicated in recent weeks by a new wave of coronavirus outbreaks across major states in the South and West including Texas, Florida, California and Arizona.

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.

Investors have remained relatively optimistic despite renewed signs of weakness in the economy, thanks in large part to rising hopes that researchers will soon succeed in developing a vaccine.

Before Wednesday’s decision, the S&P 500 index of U.S. stocks was within about 4% of the record high set in mid-February after losing more than a third of its value in the early days of the pandemic.

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