Fed plans to keep rates near zero well into the future
WASHINGTON — Federal Reserve Chairman Jerome Powell warned Wednesday that the viral epidemic is endangering the modest economic recovery that followed a collapse in hiring and spending this spring. As a result, he said, the Fed plans to keep interest rates pinned near zero well into the future.
That faltering economy, pressured by a resurgence of the virus, has heightened the need for Congress to continue providing significant financial aid, Powell said. Members of the House and Senate are negotiating a new package but are nowhere near agreement. Senate Republicans and the White House are proposing a plan that would provide less help for unemployed Americans than they are now receiving.
Speaking at a virtual news conference after a twoday Fed meeting ended, Powell said the economy had rebounded after nearly all states lifted their broad business shutdown measures in May. But since then, he noted, as new confirmed cases have soared, measures of spending and hiring have slipped or plateaued at low levels.
“Now that the cases have spiked again, the early data … suggest that there is a slower pace of growth at least for now,” he said. “We don’t know how deep or for how long it will be.”
The economic stumble, amid the worsened viral outbreak, underscores the connection between the virus and the economy’s ability to sustain any recovery, the chairman said. This point was also highlighted in the Fed’s statement, which added a new sentence: “The path of the economy will depend significantly on the course of the virus.”
That observation was an acknowledgment that uncertainty about when the health crisis might be solved has complicated the Fed’s ability to set interest rate policy.
It’s also a point that Powell has made, in one way or another, for months as most states have succeeded only fitfully in controlling the virus. And it suggested that Powell and the Fed envision a prolonged recovery that will depend in large part on how well the nation can contain the pandemic.
“A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities,” Powell said.
In the meantime, he said, “We are committed to using our full range of tools to support the economy. We will continue to use these powers until we are confident we are solidly on the road to recovery.”
Yet despite its concerns, the Fed announced no new policies. It said it will also continue to buy billions of dollars in Treasury and mortgage bonds each month, which are intended to inject cash into financial markets and spur borrowing and spending.
William English, a finance professor at Yale School of Management and former top Fed official, said Powell stressed that he wanted to see more comprehensive data, such as next week’s July jobs report, before taking further steps.
“He acknowledged the softer highfrequency data but didn’t put a huge weight on it,” he said. “He took the weight off that by emphasizing the uncertainty.”
Powell also said that
Congress had helped spur the modest economic recovery that occurred in May and June, when spending at retail stores and restaurants surged and employers added 7.5 million jobs. Still, that amounted to just onethird of the jobs lost in March and April.
“In a broad sense, it’s been well spent,““Powell said of the $2 trillion package Congress approved in March. That legislation provided $600 in jobless benefits a week and set up a small business lending program.
“It’s kept people in their homes, it’s kept businesses in business.”
Yet “there will be a need for more support from us, and from fiscal policy,” Powell said, referring to Congressional tax and spending powers.
The Fed’s overall message that it would keep rates low indefinitely with the economy in a severe downturn was widely expected by investors, and reaction in financial markets was muted. Stocks maintained their gains, and Treasury yields held steady.