Wednesday afternoon, Federal Chairman Powell said the coronavirus has brought the economy to an “abrupt halt” and it was uncertain how long the slowdown would last, as officials held interest rates near Zero, and pledged to keep them there until the nation was back on track.
“Economic activity will likely drop at an unprecedented rate in the 2nd Quarter,” Chairman Powell told a video press conference Wednesday. “It may well be the case that the economy will need more support from all of us, if the recovery is to be a robust one.”
The Federal Open Market Committee said in a unanimous statement that it “will use its tools and act as appropriate to support the economy” and cautioned the pandemic would weigh on the economy over the medium term.
US stocks indexes held gains finishing just shy of their highs after the Fed’s statement while yields on 10-yr T-Notes edged up 0.62%.
Chairman Powell emphasized the importance of fiscal policy to help and said “this is not the time” to allow concerns about the size of the federal deficit to hinder the scale of the response.
The FOMC Wednesday left unchanged their guidance on the future path of interest rates. The statement repeated language from 15 March saying the committee would keep the benchmark target range near 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.”
“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,” Chairman Powell said. “It is heartbreaking to see all that threatened right now.”
Wednesday’s statement acknowledged the extent and breadth of the damage being wrought by the ongoing contagion.
“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world,” the FOMC said. “The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses.”
The FOMC used wording similar to last month on asset purchases, saying the buying of Treasuries and mortgage-backed securities will continue “in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.”
The FOMC made specific mention of lower Crude Oil prices and their role in holding down inflation.
Policy makers extended cautiously the time frame within which they see the economic blow from the virus chaos lasting, they are offering no precise forecast.
“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 committee said.
The Fed has mounted an unprecedented push to limit the economic harm from the coronavirus, which has plunged the global economy into recession and likely sent US unemployment well above 10% after businesses shuttered to slow the contagion.
Government data released earlier Wednesday showed US GDP shrank at an annualized 4.8% rate in Q-1, the largest drop since Y 2008. Economists surveyed expect the Fed to keep rates near Zero or below for 3 or more years.
The fed funds rate has ranged between Zero – 0.25% since mid-March.
The Fed’s Board of Governors has responded to the crisis by announcing 9 extraordinary lending programs, pledging to make funds available to banks, money market funds, companies, cities and states in an unprecedented use its emergency powers.
Have a healthy day, Keep the Faith!