Fed pledges continued support for US economy amid pandemic woes

Monetary policy will continue to provide ‘powerful support’ to the economy, the United States’ central bank told Congress on Friday.

United States Federal Reserve officials have signalled they will hold interest rates near zero at least through 2023 [File: Al Drago/Bloomberg]
United States Federal Reserve officials have signalled they will hold interest rates near zero at least through 2023 [File: Al Drago/Bloomberg]

Federal Reserve actions will continue to bolster the U.S. economy as it battles the Covid-19 pandemic, the central bank said Friday in its twice-yearly update to Congress.

“Monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” the Fed said. The report was published on its website ahead of Chair Jerome Powell’s testimony before the Senate Banking Committee on Tuesday and the House Financial Services panel a day later.

Fed officials have signaled they will hold interest rates near zero at least through 2023 and last month repeated they would keep buying bonds at a monthly pace of $120 billion until “significant further progress” had been made on employment and inflation.

On an optimistic note, the Fed said data show a pickup in employment through early February in the hard-hit leisure and hospitality sector — which includes restaurants, entertainment venues, and hotels. The Fed said data on new-business applications started to pick up in the summer.

Nevertheless, other data show that services spending remains restrained, the report said.

The Fed noted that job losses in the pandemic have fallen disproportionately on low-income workers, those without a college degree, Americans of color and mothers. These groups also still have the most ground left to make up as economic activity remains suppressed.

Americans managed to save even during the crisis, bringing the aggregate savings rate to more than 13% in the fourth quarter of 2020 — almost double its level from the previous year — bolstered by government stimulus. But policy makers said this high level doesn’t show the complete picture.

“These aggregate figures mask important variation across households, and many low-income households, especially those whose earnings declined as a result of the pandemic and recession, have seen their finances stretched,” the Fed said in the report.

The Fed has re-framed its monetary policy to make an explicit commitment not to raise interest rates prematurely as unemployment falls, in order to ensure the recovery reaches the broadest number of people as possible.

“Tightening monetary policy in the absence of evidence of excessive inflation pressures may result in an unwarranted loss of opportunity for many Americans, whereas if an undue increase in inflation were to arise, policy makers would have the tools to address such an increase,” the report noted.

Source : Bloomberg

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