U.S. Fed stands pat amid election uncertainty, coronavirus resurgence concerns

US Materials 6 November 2020 04:21 (UTC +04:00)
U.S. Fed stands pat amid election uncertainty, coronavirus resurgence concerns

The U.S. Federal Reserve on Thursday kept its benchmark interest rate unchanged at the record-low level of near zero while making no change to its pace of asset purchases amid election uncertainty and coronavirus resurgence concerns, Trend reports citing Xinhua.

"Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year," the Fed said in a statement after concluding a two-day policy meeting, adding the path of the U.S. economy will depend significantly on the course of the coronavirus.

"The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the Fed said.

While pledging to use its full range of tools to support the U.S. economy "in this challenging time", the central bank decided to maintain the target range for the federal funds rate at 0-0.25 percent and continue its asset purchase program at the current pace of 120 billion U.S. dollars per month.

At a virtual press conference on Thursday afternoon, Fed Chairman Jerome Powell reiterated that the outlook for the economy is "extraordinarily uncertain" and will depend in large part on the success of efforts to keep the virus in check.

"The recent rise in new COVID-19 cases, both here in the United States and abroad, is particularly concerning. All of us have a role to play in our nation's response to the pandemic," Powell said, adding a full economic recovery is unlikely until people are confident that it's safe to re-engage in a broad range of activities.

Powell also noted that more fiscal and monetary policy support is needed to bring the U.S. economy back on track to its pre-pandemic levels.

"It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year. And it may take continued support from both monetary and fiscal policy to achieve that," he said.

The Fed meeting came as the United States added record-breaking 100,000 plus new COVID-19 cases in a single day on Wednesday, while people nationwide are waiting for the outcome of the presidential election.

"The economy continues to expand, albeit at a slower pace than in the third quarter. However, the economic outlook is clouded by uncertainties related to the pandemic as well as the yet to be determined presidential election," Jay H. Bryson, chief economist at Wells Fargo Securities, wrote Thursday in an analysis.

"Given this backdrop, the committee apparently concluded that it would be appropriate to maintain a steady course at today's meeting and continue to watch incoming data and developments before making any policy adjustments," Bryson wrote, referring to the Fed's policymaking committee.

"Today's statement made no explicit reference to any discussion about changes to the Fed's asset purchase programs. But we will get more details about today's discussion when the minutes of the meeting are released on November 25," he noted.

While there was no policy change, the Fed, facing the possibility of a divided government in Washington, "remains the only game in town" when it comes to providing sustained accommodation to an impaired economy, said Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP.

Brusuelas believed the upcoming minutes of the Fed meeting will "almost certainly include discussion around increasing the pace and intensity of asset purchases this year or next."

"In our estimation, the probability of a $2 trillion stimulus is rapidly fading, and the central bank, like other central banks around the world, will again consider further unorthodox monetary policies should the pandemic intensify beyond what is currently thought," Brusuelas said.

Powell said at the press conference that the Fed's holdings of securities are rising at a substantial rate of 120 billion dollars per month, including 80 billion dollars in U.S. treasuries and 40 billion dollars in agency mortgage-backed securities.

"Looking ahead, we will continue to monitor developments and assess how our ongoing asset purchases can best support our maximum employment and price stability objectives, as well as market functioning and financial stability," Powell told reporters.

The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of U.S. treasuries and agency mortgage-backed securities to repair financial markets. It also unveiled new lending programs to provide up to 2.3 trillion dollars to support the economy in response to the coronavirus outbreak.