Image copyright Reuters
The US central bank has pledged to continue supporting the US economy for several years as households and businesses slowly recover from the impact of the coronavirus pandemic.
Most Federal Reserve executives have said they expect to keep interest rates close to zero for at least the next three years.
Fed Chairman Jerome Powell said officials did not expect to change course until the recovery was “very advanced.”
He also warned that the rebound could be threatened without more government spending.
Following the bank’s September meeting, Mr Powell said government assistance to businesses and workers affected by the coronavirus had been “essential” to a better-than-expected recovery so far.
Projections released on Wednesday showed bank executives expect the US economy to shrink 3.5% this year – less than the feared 6.5% drop in June.
They also said they expected the unemployment rate to fall to around 7.6% by the end of the year, lower than expected.
But Mr Powell warned that the recovery could fail unless politicians approve more aid.
Image copyright EPA Image caption Economic uncertainty poses a risk for President Trump
“The real question is when, how much and what will be the content and no one is sure about that,” he said. “If we don’t have it, there would definitely be downside risks.”
Trump calls for revival
Mr Powell’s comments came as lawmakers in Washington remain at a deadlock over further spending, with Democrats calling for more aggressive action than many Republicans support.
In a tweet, President Donald Trump on Wednesday urged his party to support “much more” aid.
However, he largely dismissed the economic warnings, saying the United States was doing “incredibly well” and seizing the signs of recovery to make his case as he campaigned for reelection in November.
Polls show a majority of Americans still approve of the president’s management of the economy, but opinions about the economy have deteriorated markedly since the pandemic.
Production in the United States fell by more than 9% between April and June.
Although the drop is not as severe as in many other countries – in the UK the economy has contracted by more than 20% – the unemployment rate of 8.4% last month has remained over double the February level. Nearly 30 million Americans continue to collect unemployment benefits.
Fed response to the pandemic
The Federal Reserve has taken what Mr. Powell described as “aggressive” measures in response, including lowering interest rates near zero and buying about $ 2 billion in US government debt.
Last month, the bank also said it was relaxing its approach to managing inflation, targeting potentially higher price increases to try to spur growth and support jobs.
On Wednesday, the bank confirmed the change, saying it expected to keep interest rates close to zero until inflation was “on track to moderately exceed” its 2% target for a period of time. time”.
Fed eases inflation target amid policy change The Fed’s four sweeping moves to save the economy
Mr Powell said on Wednesday that he hoped the bank’s “very accommodating” stance – keeping interest rates low and supporting borrowing with pending security purchases – would serve as a “powerful tool” to boost the market. economic activity over time.
“This is the kind of direction that will support the economy over time,” he said.
But he has repeatedly stated that the bank’s powers to deal with the current crisis are limited and has urged Congress to approve additional aid.
Dr Kerstin Braun, chairman of Stenn International, a UK-based trade finance provider, said Mr Powell “had done what he could to stop the economic fall”.
“The US economy is crying out for a fiscal stimulus given how uneven the impact of the pandemic has been across a range of sectors – the economic rebound simply cannot be fully organic,” she said.
The Fed is operating “in the dark” amid such political and economic uncertainty, said Neil Wilson, chief market analyst at Markets.com.
“All the Fed can really do is continue to stress its willingness to do whatever is necessary and its willingness to ignore inflation overruns if they do occur,” he said.
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