The Federal Reserve expressed concern Wednesday that the viral outbreak will act as a drag on the economy and hiring in the coming months and said it plans to keep its benchmark short-term interest rate pegged near zero.
In a statement at the end of its policy-making meeting Wednesday, the Fed acknowledged that the economy has rebounded from the depths of March and April, when nearly all states closed down nonessential businesses.
The Fed announced no new policies in its statement. It said it will also continue to buy about $120 billion in Treasury and mortgage bonds each month, which are intended to inject cash into financial markets and spur borrowing and spending.
The Fed’s overall message that it would keep rates low indefinitely was widely expected by investors, and reaction in financial markets was muted. Stocks maintained their gains, and Treasury yields held steady.
Economists say the Fed has time to consider its next policy moves because short- and long-term rates remain historically ultra-low and aren’t restraining economic growth. Home sales have picked up after falling sharply in the spring. The housing rebound has been fueled by the lowest loan rates on record, with the average 30-year mortgage dipping below 3% this month for the first time in 50 years.
With the economy struggling just to grow, small businesses across the country in serious danger and unemployment very high at 11.1%, few investors expect the Fed to hike interest rates for perhaps years to come. After its previous meeting last month, the Fed had signaled that it expected to keep its key short-term rate near zero at least through 2022.
Beginning in March, the Fed has slashed its short-term rate, bought more than $2 trillion in Treasury and mortgage bonds and unveiled nine lending programs to try to keep credit flowing smoothly.
Since the Fed’s previous meeting in June, the pandemic’s threat to the economy has appeared to worsen.
The number of laid-off workers applying for unemployment aid has exceeded 1 million for 18 straight weeks. Measures of credit card spending have declined. And companies that track small-business employment say the number of people at work has leveled off, far below pre-pandemic levels, after having risen in May and June.
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