Fed likely will hold rates near zero for months

The Federal Reserve pledged Wednesday to use its full range of tools to insulate the economy as coronavirus lockdowns sap economic growth and throw millions out of work, saying it would keep interest rates near zero until a recovery was well underway.

Fed Chairman Jerome Powell, speaking at a news conference immediately after the central bank’s two-day policy meeting, said the economy is suffering from the “forceful” steps the country has taken to slow the spread of the virus and said it remains unclear how long the economic stress will continue.

“The depth and the duration of the economic downturn are unknown,” Powell said, adding that “the burdens are falling most heavily on those least able to carry them.”

“Millions of workers are losing their jobs,” he said and “household spending has plummeted.”

The Fed, which slashed rates to near zero at two emergency meetings last month, left rates unchanged and suggested officials would not be raising rates anytime soon. Powell reiterated the central bank’s statement that it is “committed to using its full range of tools to support the U.S. economy in this challenging time.”

“The path of it is highly uncertain, but we will be there with our tools, supporting the economy and supporting that recovery,” he said.

But Powell acknowledged that low interest rates cannot solve an economic slowdown caused by a virus that has quarantined workers, sidelined millions of workers and shuttered business activity across the country.

“Lowering interest rates cannot stop the sharp drop in economic activity,” Powell said, as people are ordered to stay home and businesses remain closed.

While the Fed is using all its available tools, he said, the central bank can only lend money to keep credit flowing, not spend it in the way that fiscal policymakers are able.

“Elected officials have the power to tax and spend,” he said, suggesting that more direct support to those hardest hit by the crisis might be needed to help restart the economy.

Officials gathered virtually for their first regularly scheduled meeting since the crisis took hold in the United States. In addition to cutting rates, the Fed has been buying large quantities of government and mortgage-backed debt to keep critical markets functioning.