Powell – Recovery “is going to take some time”

Federal Reserve Chair leaves rates unchanged

Powell                                 

The Chair of the US Federal Reserve Jerome Powell held interest rates unchanged at the end of the two-day Federal Open Market Committee (FOMC) meeting on Wednesday.

In the first meeting since its emergency decision to cut interest rates to near zero, resume unlimited quantitative easing and intervene in the market at an unprecedented rate, the Fed outlined its strategy for the US economy in the wake of the Covid-19 crisis.

The committee stated: “To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions."

In case there was any doubt in anyone’s mind of Jerome Powell’s dovish nature, the Fed Chair observed: "We're not thinking about raising rates, we're not even thinking about thinking about raising rates." He later vowed: "We will continue to use our powers forcefully. aggressively and proactively."

Although the Fed’s Treasury purchases have fallen from the $300bn per day peak of mid-March to around $4bn per day, the central bank is set to maintain its bolstering of the US economy until the end of 2022.

The markets were not buoyed by such commitments, however, but dipped following Powell’s dour forecast for pace of the eventual recovery.

The Fed Chair admitted: “24 million people, somehow as a country we have to get them back to work. It is a long road. It is going to take some time. We can use our tools to support the labour market and the economy and we can use them until we fully recover.”

In a statement the committee added: “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.”

While the Nasdaq continued its record rally for the fourth day of trading closing up 0.67 per cent, the Dow Jones (DJIA) and the S&P 500 closed down 1.04 and 0.53 per cent, respectively.

The dollar sank to a fresh three-month low against a basket of major currencies following the Fed’s announcement. Slumping to  individual three-month lows against the euro (EUR), pound sterling (GBP) and Swiss franc (CHF), the dollar also hit a three-week low on the Japanese yen (JPY).

The grim outlook weighed heavily on Asian markets, with the Nikkei falling 2.82 per cent and the Hang Seng closing down 2.27 per cent. European markets followed suit, by mid-morning Thursday trading the FTSE 100 had dropped 1.95 per cent, while the pan-European Euro Stoxx 50 fell by 1.85 per cent.

US national debt hit a new record high of $26trn (£20trn, €23trn).

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