Business

Fed holds rates near zero as economy reels from coronavirus

by Sylvan Lane 04/29/20 02:03 PM ET

The Federal Reserve said Wednesday that it would hold interest rates near zero percent and continue to pump trillions of dollars of stimulus into the economy as the U.S. struggles through the steepest economic downturn since the Great Depression.

The central bank’s Federal Open Market Committee (FOMC), which controls the Fed’s monetary policy tools, announced it would hold its baseline interest rate range at zero to 0.25 percent following its two-day meeting, typically held in Washington, D.C.

The Fed will also continue to purchase hundreds of billions of dollars in Treasury and mortgage bonds to keep financial markets stable and money flowing through an economy wracked by the coronavirus pandemic.

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world,” the FOMC said in a Wednesday 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.”

More than 26 million Americans have filed for unemployment benefits since mid-March, according to the Labor Department, when thousands of businesses shuttered to help slow the spread of COVID-19.

The U.S. economy shrunk at an annualized rate of 4.8 percent in the first quarter of 2020, according to Commerce Department data released Wednesday, and may contract by as much as 30 to 40 percent between April and June.

“The depths and the duration of the economic downturn are extraordinarily uncertain and will depend in large part on how quickly the virus is brought under control,” Fed Chair Jerome Powell said in a Wednesday press conference following the announcement.

“The severity of the downturn will also depend on the policy actions taken at all levels of government to cushion the blow and to support the recovery when the public health crisis passes.”

To soften the economic blow of the pandemic, the Fed has waged an unprecedented intervention into the U.S. economy through a mix of emergency lending facilities once deployed during the 2007-09 recession and new taboo-breaching programs to aid businesses and local governments.

The Fed slashed rates to zero percent after an emergency FOMC meeting on March 15, forgoing the scheduled summit on March 18-19 as financial markets crashed.

The $2.2 trillion coronavirus relief bill signed by President Trump in March allocated $454 billion in credit protection for roughly $4 trillion in Fed emergency loans and credit to financial firms, businesses and municipalities. The Fed announced in April it would use that funding, along with other sources, to extend up to $2.3 trillion in additional relief through nearly a dozen lending and credit facilities rolled out over the spring.

Updated at 2:49 p.m.