(Reuters) – The rise in US coronavirus cases and restrictions aimed at containing it have begun to weigh on the economic recovery, the head of the Federal Reserve said on Wednesday, signaling an apparent setback by consumers and a slowdown in the rehire of laid off workers, particularly for small businesses.
“We have seen some signs in recent weeks that the surge in virus cases and renewed measures to control it are beginning to weigh on economic activity,” Federal Reserve Chairman Jerome Powell said at a press conference. following the release of the latest policy statement from the US central bank.
The United States “has entered a new phase to contain the virus, which is essential to protect our health and our economy.”
Powell’s comments, made via videoconference, confirmed what many economists and other analysts have maintained in recent weeks as coronavirus infections exploded in several southern and southwestern states, dampening hopes for a rapid economic rebound.
The Fed’s policy statement on Wednesday directly linked the economic recovery to the resolution of a health crisis whose direction remains highly dubious. More than 150,000 Americans have died from COVID-19, the respiratory disease caused by the new coronavirus.
“The path of the economy will depend significantly on the course of the virus,” said the Federal Open Market Committee (FOMC) of the Central Bank.
At his press conference, Powell elaborated on how much remained unclear about the direction of the world’s largest economy. The fiscal programs he credits with sustaining consumer spending in recent weeks are about to expire, with the debate still ongoing in Congress about what, if anything, will take its place.
The virus is moving so fast that policymakers are taking cues about the economics of companies’ real-time data flows that track people’s movements via cell phones, for example, or provide cues about the hiring, Powell said.
“That information shows that overall … it appears that the pace of recovery has slowed since cases started that peak,” he said.
The Fed kept the policy largely stable at its two-day policy meeting this week, and key decisions are likely to come this fall after it is clearer where the health crisis is headed and how vigorously Congress adds or not to the support available to companies in difficulties and unemployed workers.
Federal Reserve policymakers reiterated their promise to use their “full range of tools” to support the economy and keep interest rates close to zero for as long as it takes to recover from the consequences of the epidemic, saying that The economic path will depend significantly on the course of the economy. the virus.
“After sharp declines, economic activity and employment have picked up a bit in recent months, but remain well below their levels earlier in the year,” the Fed said in its statement on Wednesday.
All FOMC members voted to leave the target range for short-term interest rates between 0% and 0.25%, where it has been since March 15 when the virus began to affect the nation.
“The Committee hopes to maintain this target range until it is confident that the economy has withstood recent events and is on track to meet its maximum employment and price stability targets,” the statement said.
US stocks boosted gains after the Fed statement, while longer-term US Treasury yields moved slightly higher. The dollar fell to a two-year low against a basket of coins.
“Most notable is the claim that the path of the economy will depend on COVID-19. The Fed is putting health back front and center in its statement, which is shocking and significant, ”said Nela Richardson, investment strategist at Edward Jones in St. Louis.
“It’s a little sinister, to be honest. We know that this virus is unpredictable. That sentence shows the primacy of COVID-19 in his perspective and the uncertainty of his perspective because of that. ”
NO CHANGE FOR NOW
Federal Reserve officials were expected to spend part of their meeting debating how to strengthen their alleged advance guidance, perhaps promising that there would be no change in interest rates until unemployment and inflation rates reach explicit benchmarks.
Wednesday’s policy statement gave no indication of such a change, which many Fed analysts hope will not come until the September meeting.
The Fed also said it will continue to buy at least $ 120 billion in United States Treasury bonds and mortgage-backed securities each month from stable financial markets.
He renewed his low-rate vote a day before a government report expected to show a record 34% drop in annualized economic output last quarter, when authorities imposed blockades that closed businesses and kept people at home on an attempt to stop the spread of the coronavirus. .
The Fed’s policymakers hoped that those measures would help contain the virus, allowing the economy to recover quickly, even when they worried about the possibility of infections resurfacing and slowing the economic recovery.
The United States central bank has launched nearly a dozen new loan and credit programs to combat the economic consequences of the epidemic. But the immediate prospect largely depends on where the infections go from here and how much more fiscal support legislators provide in the meantime.
Since its last policy meeting in June, the epidemic has intensified, with an average of about 65,000 new cases detected each day, about three times the rate of new infections in mid-June. The increase in COVID-19 deaths has led California governors to Florida to impose new economic restrictions.
Job growth, which had been unexpectedly strong in May and June, now appears to be slowing, and consumer confidence has been affected.
Meanwhile, government aid that kept spending on millions of unemployed Americans will drop sharply later this week unless Congress agrees on a new aid package. Republicans are divided over whether to support $ 1 trillion in new spending, and Democrats want a figure closer to the $ 3 trillion that Congress has already pledged to combat the crisis.
Small businesses, a mainstay of the United States economy, also increasingly face a breaking point as government subsidies run out and payments fall due.
(Graph: A job drop in July? – here)
Reports by Ann Saphir, Howard Schneider, Lindsay Dunsmuir and Jonnelle Marte; Editing by Andrea Ricci and Paul Simao
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