Fed says outlook remains uncertain, more stimulus ‘essential’

WASHINGTON: The Federal Reserve pledged on Wednesday to keep boosting the US economy with low rates to help recover the tens of millions of jobs lost in the pandemic, but said additional help from the government will be key.

Government stimulus provided in the early stages of the pandemic was “essential” to the better-than-expected progress made so far, Fed Chair Jerome Powell said, but another dose will likely be needed since the outlook remains “highly uncertain.”

The Fed announcement came amid renewed optimism that the White House and Democratic leaders in Congress will reach a compromise on a new spending package, even as data showed spending gains have slowed and layoffs continue.

The policy-setting Federal Open Market Committee said it will keep interest rates low until it has achieved its goal of maximum employment, allowing inflation to push beyond 2% in order to spur job gains as the world’s largest economy recovers from the Covid-19 pandemic.

Powell told reporters that “overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain.”

He noted that roughly 11 million people are still out of work due to the pandemic and as many were working in industries that are likely to struggle, “those people may need additional support.”

Small businesses also continue to struggle, while state and local governments dealing with a drop in revenue at the same time spending has gone up, he said.

The median GDP forecast among the 17 FOMC members reflect the better-thanexpected US recovery, and they now see the economy contracting by only 3.7% this year, compared to 6.5% drop expected in June.

However, growth expectations for 2021 and 2022 were more modest than previously.

US unemployment has fallen to 8.4% from its peak of 14.7% in April amid the most widespread pandemic business shutdowns, and the FOMC members’ median forecast is for the jobless rate to end the year at 7.6% and drop to 5.5% by the end of next year.

“The labour market has been recovering but it’s a long way from maximum unemployment,“Powell said.

The Fed statement reaffirmed the policy shift that Powell announced last month, which means the central bank will keep rates low to return to maximum employment allowing inflation to heat up and hold above the 2% target for an extended period. – AFP