Fed chairman acknowledges role race plays in economics

The US central banks predicts US GDP will decline, promises to keep rates near zero

US Fed
The US Federal Reserve sees the overnight interest rate remaining near zero through at least 2022[File: Andrew Harrer/Bloomberg]

The United States Federal Reserve Chairman Jerome Powell warned of continued economic trouble, acknowledged the role race has played in the US economy, and noted  people of colour are being disproportionately impacted by the coronavirus-induced economic downturn.

“The downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the most affected. In particular, the rise in joblessness has been especially severe for lower-wage workers for women, and for African Americans and Hispanics,” the chairman said during a news conference at the conclusion of the US central bank’s policy meeting on Wednesday.

The Fed also repeated its promise to continue its extraordinary support for the economy. Policymakers projected a 6.5 percent decline in the US gross domestic product (GDP) this year and a 9.3 percent unemployment rate at year’s end.

In its latest policy statement, the US central bank stressed the public health crisis will continue to impact US economic activity, employment and inflation in the near term “and poses considerable risks to the economic outlook over the medium term.”

The first policymaker economic projections since December see the overnight interest rate remaining near zero through at least 2022.

The central bank also promised to maintain bond purchases at “the current pace” of about $80bn per month in Treasuries and $40bn per month in agency and mortgage-backed securities. The move is a sign the US central bank is beginning to shape its long-run strategy for economic recovery.

That is expected to begin in earnest in 2021 with growth forecast at 5 percent. The pledge to keep monetary policy loose until the US economy is back on track repeats a promise made early in the central bank’s response to the coronavirus pandemic. That response included cutting its key overnight interest rate to near zero in March and making trillions of dollars in credit available to banks, financial firms, and a wide array of companies.

The projections are the first issued since December and offer policymakers’ views on how fast employment and economic growth might recover, and an initial steer on how long the federal funds rate will be pinned down.

Through most of last year, US central bankers felt they were in an enviable spot, with record low unemployment, tame inflation, and a strong expectation that both would continue.

But the pandemic has now thrown them into what may be a years-long fight to bring Americans back to work after some 20 million jobs were lost from March through May.

Source: Al Jazeera, News Agencies