Fed Pledges To Keep Rates Near Zero Until Full Employment, Inflation Come Back

The Federal Reserve painted a dour picture of current conditions and pledged Wednesday to continue its historically aggressive policy stance until it is comfortable that the U.S. economy is back on its feet.

Following this week's Federal Open Market Committee meeting, the central bank said it would maintain its current interest rate target between 0% and 0.25%. 

"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," the committee said in its post-meeting statement. "The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals."

The commitment represents a pledge to hold rates near zero and keep them there until full employment returns and inflation gets back to around the Fed's long-stated 2% goal.

"We're going to not be in any hurry to withdraw these measures or to lift off. We're going to wait until we're quite confident that the economy is well on the road to recovery," Fed Chairman Jerome Powell said in a post-meeting news conference.

There was no expression in the statement that the Fed feels confident about what its moves will lead to in terms of economic growth. Instead, the committee said it will continue to monitor conditions "including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy."

There also was no mention of the pace of bond purchases in the future, with Powell only saying they will continue "as needed." The Fed is engaged in an open-ended program of purchasing Treasurys and mortgage-backed securities. Nor did the statement discuss any of the specific programs the Fed has implemented during the current crisis.

The move comes after a historically unprecedented time for the Fed.

Called into action to halt a market freeze and economic collapse from the coronavirus, the Fed enacted two emergency cuts that brought short-term borrowing rates back to where they were during the financial crisis. In addition, officials announced 10 separate programs aimed at providing market liquidity and getting loans to businesses and consumers in need, several of which are yet to be implemented.

In assessing the current state of affairs, the committee noted bleak conditions across multiple sectors of the economy.

"The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world," the post-meeting statement said.

"The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation," the statement continued. "The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses."

Powell discussed in general terms the lending facilities the Fed has implemented that have stretched across money markets, small businesses and municipalities, with a Main Street program in the wings. He said both the Fed and Congress likely would be called on to do more at some point.

"We are deploying these lending powers to an unprecedented extent," he said.

RECENT NEWS

Stocks Rise After Better-than-expected Jobs Report To Close Out Winning Week

Stocks rose on Thursday following a better-than-expected U.S. jobs report as the economy tries to recover from the coron... Read more

Record Jobs Gain Of 4.8 Million In June Smashes Expectations; Unemployment Rate Falls To 11.1%

Another big contributor to the decline of the jobless rate was a plunge in those on temporary layoff. That total fell by... Read more

17.6 Million Unemployed Americans Probably Won't Return To Their Pre-pandemic Jobs

The share of the workforce currently out of work with no reasonable chance of returning to their jobs is about 11%, or a... Read more

GM, Fiat Chrysler U.S. Auto Sales Tank In Second Quarter As Coronavirus Saps Demand

U.S. vehicle sales in the second quarter for General Motors, Toyota Motor and Fiat Chrysler plunged by more than 30% Read more

Mortgage Demand Falls For The Second Straight Week, Signaling A Potential Slowdown In The Housing Recovery

The surge in mortgage demand from homebuyers over the past two months appears to be waning, even as mortgage rates conti... Read more

Fed's Bullard Warns Of Financial Crisis Risks As Virus Cases Spike, FT Reports

St. Louis Federal Reserve Bank president James Bullard has warned that a growing number of bankruptcies due to the coron... Read more