US Federal Reserve holds rates and expresses caution about recovery
The US Federal Reserve has kept interest rates on hold at their current record low level and signalled that they will stay there until “the economy has weathered” the coronavirus outbreak.
The Fed said coronavirus “is causing tremendous human and economic hardship”. It added that it “poses considerable risks to the economic outlook over the medium term,” suggesting the central bank is not expecting a sharp recovery.
After a two-day meeting of its Federal Open Market Committee (FOMC), the US’s central bank stopped short of taking further action to support the economy, having pumped unprecedented liquidity in a series of moves.
Instead, it said it will “monitor the implications of incoming information for the economic outlook”.
The Fed has been the most active central bank during the coronavirus crisis, which befits its status as the guardian of the world’s most important currency, the US dollar.
It slashed its main interest rate in two meetings in early-to-mid March, taking the target range down to zero to 0.25 per cent, the joint-lowest on record.
It has ramped up its quantitative easing bond-buying programme, including corporate and municipal paper. On 23 March, it promised to make its bond-buying unlimited.
The Fed has also pumped trillions of dollars into short-term funding markets to ensure businesses and financial institutions can access the cash they need during the crisis.
US economy in freefall
The FOMC today highlighted the huge damage coronavirus is wreaking on the US economy, after official figures showed GDP fell by 4.8 per cent in the first quarter, the most since the 2008 financial crisis.
“The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses,” it said.
“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.”
Despite the dire economic data, US stocks jumped today after pharmaceutical firm Gilead said its coronavirus drug remdesivir had shown positive signs in a trial.
The Dow Jones was up 2.4 per cent while the S&P 500 had climbed 2.8 per cent in afternoon trading.
US stocks have also been supported by unprecedented stimulus from Congress, which has signed off on bills worth $3 trillion.
However, many analysts have questioned the recent stock rally. Some have predicted that US second-quarter GDP could plunged by more than 30 per cent.