Federal Reserve Chairman Jerome Powell on Wednesday said that while recent news on COVID-19 vaccines is positive, the surge in infections is “concerning” and warned that “the next few months are likely to be very challenging.”
Speaking during a virtual news conference at the conclusion of the Fed’s two-day policy meeting, Powell said everyone can help get the economy “back to full strength” by following the advice of public health officials and wearing masks in public and social distancing.
“Full economic recovery is unlikely until people are confident that it is safe to engage, reengage in a broad range of activities,” he said.
The Fed voted on Wednesday to leave its benchmark interest rate unchanged at near zero, which was widely anticipated, and released projections showing that a majority of policymakers expect it to stay there through 2023.
The US central bank had already pledged to keep rates low until inflation is on track to modestly overshoot its 2 percent goal as it prioritises getting Americans back to work over pre-emptively keeping price pressures in check.
In its post-meeting statement, the Fed also said it will continue to shore up the US economy with its enormous bond-buying programme, purchasing at least $120bn worth of US treasuries and mortgage-backed securities each month “until substantial further progress has been made” towards meeting its employment and inflation goals.
As has been the case throughout the pandemic, Powell emphasised the human toll of the economic fallout from COVID-19 and the disproportionate effect it is having on historically disadvantaged communities and women.
He also spoke of the toll the crisis is having on “small businesses all over the country that have been basically unable to really function”.
“They’re just hanging on, and they’re so critical to our economy,” Powell said. “Now that we can see the light at the end of the tunnel, it would be bad to see people losing their business – their life’s work in many cases, or even generations worth of work – because they couldn’t last another few months, which is what it amounts to.”
A recovery in peril
Data released on Wednesday showed that the engine of the US economy – consumer spending – downshifted in November with retail sales posting their sharpest fall in seven months.
The crucial holiday shopping season is suffering as consumers hunker down at home and states and cities order restrictions to limit the spread of COVID-19.
Millions of Americans are also experiencing severe financial hardships due to job losses or because they have left work to meet the growing demands of childcare as daycare centres remain close and remote learning keeps more kids at home.
Nearly 10 million American jobs lost during the first wave of lockdowns have not yet been recovered. And while the nation’s unemployment rate edged down to 6.7 percent in November, it fell because fewer people were actually looking for work.
Key virus relief aid programmes expired at the end of July – hammering the finances of the nation’s most vulnerable. More protections are set to lapse at the end of this year including a moratorium on evictions and unemployment benefits for the self-employed and gig workers.
Congress has been haggling for months about a new round of virus relief aid. News reports on Wednesday said Democrats and Republicans were closing in on a $900bn deal that would include another round of stimulus cheques for eligible Americans, but no financial aid for cities and states, or liability protections for the nation’s businesses.
“The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses and communities across the country,” Powell said on Wednesday.
“Even so, the current economic downturn is the most severe of our lifetimes. It will take a while to get back to the level of economic activity, unemployment, that prevailed at the beginning of this year, and it may take continued support for both monetary and fiscal policy to achieve that.”
Projections from the Fed released on Wednesday showed policymakers have become more upbeat about the outlook since September.
The new Fed estimate expects the US economy to shrink 2.4 this year – a marked improvement over its September estimate for a 3.7 percent contraction.
The Fed also sees the economy rebounding to 4.2 percent growth in 2021.
The Fed expects the nation’s unemployment rate to fall to 5 percent next year – an improvement over September’s estimates – and a return to a pre-pandemic level of 3.7 percent by 2023.