WASHINGTON — The Federal Reserve left interest rates near zero Wednesday and pledged to keep supporting the U.S. economy as the pandemic continues to depress economic growth and sideline millions of workers.
“The path of the economy will depend significantly on the course of the virus,” the central bank said in its post-meeting statement, which reiterated that the Fed will keep low rates in place “until it is confident that the economy has weathered recent events.”
Jerome Powell, the Fed chair, said at a news conference following the meeting that the “pace of recovery looks like it has slowed” since the virus began to spike again in June. While employment ticked up in May and June, “recent labor market indicators point to a slowing in job growth, particularly among smaller businesses,” he said, adding the outlook for consumer spending “may be softening again now.”
The Fed chair said the central bank remains committed to using all its tools to “provide some relief and stability to ensure that the recovery will be as strong as possible and to limit lasting damage to the economy.”
The Fed has put in place a series of measures since March to help cushion the economic fallout as businesses closed or reduced capacity and shoppers stayed home to control the spread of coronavirus. It has rolled out nine emergency lending programs, which are meant to keep credit flowing to businesses and state and local governments. It is purchasing government-backed bonds to keep markets functioning normally, and it has slashed interest rates to rock bottom to entice borrowing and spending.
But Powell made clear that the Fed, along with Congress, will need to do more to support workers and businesses even once the economy opens more fully.
“There’s probably going to be a long tail where a large number of people are struggling to get back to work,” he said, noting that those who work in restaurants, bars, hotels and other places that involve large numbers of people gathering together will struggle to find employment.
“There won’t be enough jobs for them,” he said. “There will be a need both for more support from us and for more fiscal policy.”
On Tuesday, officials announced that they would extend their emergency lending programs through the end of 2020. Seven of the programs were initially set to expire around the end of September, but as coronavirus cases have continued to rise, it has become clear that the market backstops could still be needed in the months to come.
The Fed said Wednesday that it would also extend its programs meant to keep dollar funding readily available to foreign central banks through March.
Powell said it was important that the facilities stay in place “until we’re very confident that the turmoil from the pandemic and the economic fallout are behind us.”
The unemployment rate, while falling, remains historically high at 11.1%. Initial jobless claims ticked up last week after months of gradual improvement, stoking concerns that the economy might be backsliding. Data suggest that many businesses are beginning to close permanently.
The crisis is hitting disadvantaged communities particularly hard. The Fed’s own surveys have shown that poorer people were more likely to lose jobs, and those with less education often did not have the option to work from home. The jobless rate for Black workers has skyrocketed to more than 15%, and Black men saw their unemployment rate continue to tick up in June even as the rate for other racial and gender groups began to fall.
While Fed officials’ June economic projections suggested that they expected unemployment to fall below 10% by the end of the year, based on the central forecast, policymakers made it clear that conditions were extremely uncertain. The recent surge in infections could temper the more optimistic takes.
The central bank’s policies do seem to be offering support, at least around the edges. House buying has ticked up, fueled by cheap mortgage rates, and the U.S. homeownership rate is now at levels last seen before the 2008 financial crisis.
Key credit markets have calmed down after a disorderly March and April, as has the market for U.S. government debt.
“Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” the Fed said in its statement.
The question is whether the Fed’s efforts will be enough to lead the economy toward recovery, especially as the path forward for further economic aid from Congress looks uncertain.
Republicans and Democrats are negotiating over how to extend federal aid for the pandemic’s many economic victims, including an extra $600 per week in unemployment benefits that expires Friday.
Powell, for his part, made clear that the Fed was ready to keep rates at rock-bottom for the foreseeable future.
“We’re not even thinking about thinking about thinking about raising rates,” he said.