Flags fly over the US Federal Reserve headquarters in Washington. Picture: REUTERS
Flags fly over the US Federal Reserve headquarters in Washington. Picture: REUTERS

Washington —   The US Federal Reserve on Wednesday stressed that the course of the coronavirus pandemic will be critical to the economic recovery.

Fed officials left the  benchmark interest rate unchanged near zero and again vowed to use all their tools to support the US economy amid a shaky recovery from the coronavirus pandemic.

“The path of the economy will depend significantly on the course of the virus,” the US central bank’s Federal Open Market Committee (FOMC) said in a statement on Wednesday after a two-day policy meeting.

"The coronavirus outbreak is causing tremendous human and economic hardship across the US and around the world," the committee said in its statement 

Economic activity and employment, after sharp declines, “have picked up somewhat in recent months but remain well below their levels at the beginning of the year”, the Fed said.

The FOMC repeated prior language that the pandemic “poses considerable risks to the economic outlook over the medium term” and that the federal funds rate would remain 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”.

The vote, to leave the federal funds target rate in a range of 0% to 0.25%, was unanimous. The FOMC also reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities “at least at the current pace” over coming months.

The statement did not  include any mention of Fed officials linking the rate path to specific inflation or unemployment thresholds, a move that economists expect to happen in September.

In a separate statement on Wednesday, the Fed said it extended its dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities through March 31 2021.

Fed chair Jerome Powell will hold a virtual press conference at 2.30pm Washington time.

Powell and his FOMC colleagues have kept their benchmark rate pinned near zero since the pandemic’s onset in March and rolled out several emergency lending programmes aimed towards fostering liquid trading conditions in financial markets.

That aggressive action has helped to calm investors. But progress towards recovery has been complicated in recent weeks by a new wave of coronavirus outbreaks across major states in the south and west US, including Texas, Florida, California and Arizona.

High-frequency economic indicators are pointing to a stall in the rebound as consumers hold out from activities like dining out and air travel that had started to bounce back when the earlier wave of outbreaks dissipated.

Investors have remained relatively optimistic despite renewed signs of weakness in the economy, thanks in large part to rising hopes that researchers will soon succeed in developing a vaccine.

Before Wednesday’s decision, the S&P 500 index of US stocks was within about 4% of the record high set in mid-February after losing more than a third of its value in the early days of the pandemic.

Bloomberg, AFP

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