US Fed leaves interest rates near zero

Even interest rates near zero may not be enough to prop up the United States’ economy. During a video press conference, US Federal Reserve Chairman Jerome Powell said, “It may be the case that the [US] economy will need more support from all of us if the recovery is to be a robust one.”

In a statement issued on Wednesday at the end of a two-day policy meeting held via videoconference, the US central bank said it would leave interest rates near zero. The Fed also promised to use its “full range of tools” to not only prop up the US economy but also promote “maximum employment and price stability goals”.

The Fed also said it expected to maintain the target range for its benchmark overnight lending rate “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 Fed has pumped trillions of dollars in emergency funding into US financial markets to stem the damage from the coronavirus pandemic.

The US economy contracted in the first quarter at its sharpest pace since the Great Recession, ending the longest economic expansion in the nation’s history, the Commerce Department reported on Wednesday.

Plunging consumer spending on the back of widespread stay-at-home orders to curb the spread of the virus helped drive a 4.8 percent decline on an annualised basis in first-quarter gross domestic product. The US economy had grown at a 2.1 percent pace in the final three months of 2019.

“The Global Coronavirus Recession (GCR) has hit the US economy with tremendous force. Following ten years of continuous growth, the longest US economic expansion has ended,” Gregory Daco, chief US economist for Oxford Economics, wrote in a research note. “While the 4.8 percent annualized plunge in real GDP is the sharpest contraction since 2008, it will pale in comparison with the near-40 percentage plunge in Q2.”

The depth of the economic slowdown is starting to become clear, with more than 26 million people filing new claims for unemployment benefits since March 21. Many of the newly unemployed are people of colour and low-wage workers.

“I think everyone is suffering here but I think those who are least able to bear it are the ones who are losing their jobs,”  Powell said during the video press conference.

Most US states still have stay-at-home measures, though a handful are beginning to reopen even as cases of COVID-19, the respiratory illness that has killed more than 57,000 people in the United States, continue to grow.

Many health experts have also begun to predict a seasonal resurgence of COVID-19 in the fall, whatever containment measures are put in place, raising the possibility that stay-at-home restrictions may need to be reintroduced, and with them, a new downturn in economic growth.