Fed keeps rates close to zero as new signs slow US economic recovery

The Federal Reserve said at its first meeting of the year on Wednesday that it would leave interest rates close to zero and reaffirmed its commitment to further easing policies amid further signs of slowing the economy. US economic recovery after the coronavirus pandemic.

The US central bank, as was widely expected, kept the benchmark federal funds rate in a range of 0% to 0.25%, where it has been since mid-March, and said that ‘it would maintain its large-scale asset purchases, a practice known as quantitative easing.

“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors hardest hit by the pandemic,” policymakers said in a statement released after the pandemic. meeting.

December marked the first time since April that job growth fell and retail sales fell for the third month in a row as a nationwide spike in COVID-19 cases sparked a new wave of closures. The number of Americans claiming unemployment benefits each week has also been on the rise since November.

Officials reiterated previous indications that the pandemic continues to “weigh on economic activity, jobs and inflation, and poses significant risks to the economic outlook,” and said the virus – as well as the vaccine distribution – will ultimately dictate the course of the economy.

At a press conference on Wednesday, President Jerome Powell said that if the economy stays far from pre-crisis levels, he sees better prospects for the year ahead.

“Sufficiently widespread vaccinations would allow us to put the pandemic behind us,” he said.

The Fed intervened in early March to prevent an economic collapse by cutting interest rates, launching a dozen credit facilities to support the credit market, and injecting nearly $ 2.8 trillion into the economy, a unprecedented amount.

The Federal Open Market Committee, which sets the rates, will continue to purchase at least $ 120 billion in bonds each month “until substantial progress is made towards maximum employment and price stability targets. of the Committee, “he said in a statement.

Officials have pledged to keep rates low, even if inflation approaches or slightly exceeds the Fed’s target range of 2%. Previous projections from the December Fed meeting show policymakers expect interest rates to stay close to zero until 2023.

“The statement itself really didn’t contain a lot of new information, but it ended fears that the Fed was considering cutting asset purchases sooner than expected,” said Jason Pride, CIO of Private Wealth. at Glenmeade. “If anything, the Fed added a statement acknowledging that the pace of the recovery has moderated in recent months.”

At the end of December, Congress approved $ 900 billion in new relief spending to deal with the pandemic and economic fallout, including authorizing a second stimulus check of $ 600, increasing unemployment benefits until mid-March and another round of funding for a small business bailout program.

President Biden is also pushing lawmakers to pass a $ 1.9 trillion aid package that includes $ 20 billion for vaccine distribution, $ 350 billion for state and local government aid, a third $ 1,400 stimulus check and extra unemployment assistance until the end of September.

Powell called tax policy “absolutely essential” to avert a more drastic economic collapse and noted that there were still 9.8 million Americans out of work since February, before the crisis began. But he declined to comment further on another round of emergency relief.

“The judgment on how much to spend and how is up to Congress and the administration, not the Fed,” he said.

This is a developing story. Please come back for updates.