Fed warns of uncertain path for post-pandemic U.S. economy

WASHINGTON, USA – The Federal Reserve on Wednesday, June 10, projected a solid rebound for the United States economy next year amid optimism that the worst of the coronavirus pandemic‘s disruptions has passed.

Fed Chair Jerome Powell however cautioned that the outlook remains highly uncertain, and both the central bank and Congress may have to do more to boost the recovery.

At the conclusion of its two-day meeting, the Fed’s policy-setting Federal Open Markets Committee (FOMC) confirmed it will keep the benchmark interest rate at zero until the recovery is underway.

The Fed also released economic projections of FOMC members for the first time since December. Their median forecast is for the economy to contract by 6.5% this year, with unemployment falling to 9.3% by the end of the year from its current 13.3%.

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world,” the FOMC statement said.

“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the central bank warned.

Despite nearly two million cases and 112,000 deaths from COVID-19 in the US, there is evidence the economy may be rebounding from its bottom.

The employment report last week showed that 2.5 million jobs were added in May, but more than 20 million people were still out of work.

As a result, the FOMC will keep the key rate at zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

The median forecast of FOMC members shows they expect the key rate to stay the same through 2022 at least, before edging back up near 2.5% over the longer term. Only two central bankers projected the rate would rise off zero in 2022.

However, they expect a solid economic rebound in 2021, with growth of 5% that would then slow to 3.5% in 2022.

Get people working

Powell cautioned that “the path of the economy is highly uncertain.”

While the May jobs report was “probably the biggest data surprise that anybody can remember,” he noted that tens of millions of people remain out of work.

“Somehow, we’ve got to all, as a country, get those people back to work. They didn’t do anything wrong. This was a natural disaster,” Powell told reporters, pledging that the Fed would “use all our tools” to get back to full employment.

He declined to comment on what steps Congress should take, but said, “It’s possible that we will need to do more, and it’s possible that Congress will need to do more.”

The Fed also said it will continue to work to ensure households and businesses have access to credit by continuing to purchase Treasury bonds and mortgage-backed securities at its current rate.

Powell said after the meeting that the programs are “providing financing where not otherwise available,” and also increasing the willingness of private lenders to offer credit.

The Fed will continue to use its tools “forcefully, proactively, and aggressively until we are confident that we are fully on the road to recovery,” he told reporters.

The central bank already cut rates to zero in March as the crisis began and has been pumping trillions of dollars into the economy – essentially printing money. 

This week, it again expanded its planned Main Street Lending Program for small- and medium-sized businesses, which Powell said was the result of continued feedback from potential borrowers, and will make the program more effective. – Rappler.com