US Federal Reserve Warns Coronavirus “Poses Considerable Risks”

The Federal Reserve said Wednesday the coronavirus pandemic already has caused “tremendous” health and economic hardship, and warned the damage to the US economy will continue along with high unemployment.

The crisis “poses considerable risks to the economic outlook over the medium term,” the policy-setting Federal Open Market Committee (FOMC) said at the conclusion of its two-day meeting.

The central bank kept the benchmark interest rate at zero, and said it will remain there until the economy has weathered the crisis and is ready to resume growth.

The Fed statement followed the shock announcement that the US economy collapsed in the first quarter, an early sign of the damage wrought by the coronavirus.

The 4.8 percent contraction in GDP in the first three months of the year was all the more worrying since the most strict business shutdowns and stay-at-home orders did not occur until the final weeks of March.

Fed Chair Jerome Powell warned that “economic activity will likely drop at a unprecedented rate in the second quarter” at a rate “worse than we’ve seen” and accompanied by high unemployment that will take persist for some time.

Private economists are predicting a decline in growth by as much as 40 percent in the second quarter amid the collapse in consumer spending and business investment.

Job losses have hit 26 million since mid-March, and companies are beginning to make more permanent cuts due to the uncertain outlook, including aerospace giant Boeing, which plans to slash 10 percent of its workforce.

It will take “some time to get back to anything nearly resembling full employment,” Powell said.

The central bank had moved quickly to get ahead of the bad news, with the FOMC slashing the benchmark lending rate to zero by the middle of last month following two emergency meetings.

The committee pledged to hold rates at zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

All the tools

The central bank is “committed to using our full range of tools to support the economy… to assure that the recovery when it comes will be as robust as possible,” Powell said in a press briefing following a two-day policy meeting.

He noted that Congress has moved quickly to provide support for businesses and households but said “it may well be the case that the economy will need more support from all of us, if the recovery is to be a robust one.”

And he said now is “not the time” to let a concern about fiscal deficits “get in the way of us winning this battle.”

“This is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer run productive capacity of the economy as possible,” Powell told reporters.

Powell cautioned that it is difficult to predict when the recovery will come, especially with the potential damage to the productive capacity of the US economy.

While the Fed cannot spend and its powers are limited to lending to viable borrowers, Powell said “we will do it to the absolute limit of those powers.”

The committee pledged to continue its efforts to inject funds into the financial system to ensure it doesn’t freeze up and also buy US Treasury debt, mortgage-backed securities and other corporate debt “in the amounts needed to support smooth market functioning.”

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses,” the FOMC said.

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Neal Bhai has been involved in the Bullion and Metals markets since 1998 – he has experience in many areas of the market from researching to trading and has worked in Delhi, India. Mobile No. - 9899900589 and 9582247600

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