(Reuters) – The rise in coronavirus cases in the United States is beginning to weigh on economic activity, the head of the Federal Reserve said on Wednesday, vowing that the United States central bank “will do what we can, and for as long as necessary. ” “To limit damage and boost growth.
“The data appears to point to a slowdown in the pace of recovery,” Fed President Jerome Powell said at a press conference, noting an apparent slowdown by consumers and a slowdown in hiring workers. fired, in particular by small businesses. .
The United States, he said, “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 after the Fed announced its policy decision to leave interest rates close to zero, suggest lowering hopes for a rapid economic rebound. Coronavirus infections have exploded in several southern and southwestern states in recent weeks, and some states have paused or reversed reopening measures.
The Fed’s policy statement, issued at the close of its two-day meeting, directly links 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. “I want to emphasize,” he added, “it is too early to say how big it is and how sustained it is.”
The Fed has kept policy largely stable, and key decisions are likely to come this fall after it is clearer where the health crisis is heading and what steps Congress is taking to support struggling businesses and workers. unemployed.
Fed 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 epidemic.
All FOMC members voted to leave the target range for short-term rates between 0% and 0.25%, where it has been since March 15 when the virus began to affect the nation.
“We’re not even thinking about thinking about thinking about increasing rates,” Powell said, noting that the economic recovery will take a long time because millions of people working in hard-hit industries like hotels or restaurants will have no work to return to any time soon. ” We are in this until we have overcome it. ”
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. … That sentence shows the primacy of COVID-19 in their perspective and the uncertainty of their perspective because of that, “said Richardson.
NO CHANGE FOR NOW
If official economic data supports early indications of a slowdown in growth, the Fed could further ease policy, Powell said, even by not promising any changes in interest rates until unemployment and inflation rates reach lows. explicit reference.
A government report due Thursday is expected to show a record 34% drop in annualized economic output last quarter.
Since the last Fed 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 mid-June.
Job growth, which had been unexpectedly strong in May and June, now appears to be slowing and consumer confidence has been affected.
Government aid that kept spending on millions of unemployed Americans will drop sharply later this week unless Congress agrees on a new aid package, as Republicans and Democrats so far cannot bridge their differences.
Small businesses, a mainstay of the U.S. economy, increasingly face a breaking point as government grants run out and payments fall due.
(Graph: A job drop in July? – here)
Reports by Ann Saphir and Howard Schneider; Additional reports by Lindsay Dunsmuir and Jonnelle Marte; Editing by Andrea Ricci, Paul Simao and Leslie Adler
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