The Fed sees near-zero interest rates lasting through 2022 to curb the coronavirus' economic damage
Federal Reserveheld interest rates near zero on Wednesday after a two-day Federal Open Market Committee meeting.
- Most policymakers expect historically low rates to last through 2022.
central bankalso set a floor for its asset purchases, pledging to take in at least $80 billion in Treasurys every month and $40 billion worth of mortgage-backed securities.
Jerome Powellsaid that delays in rolling out the Fed's $600 billion Main Street Lending Program were used to make "very positive" changes.
- The chair added that yield-curve control remained a potential next step for keeping borrowing costs low through the long economic recovery.
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The Federal Reserve held interest rates near zero on Wednesday and indicated that it expected to maintain that level until the end of 2022.
All members of the Federal Open Market Committee expect the rate to remain near zero through 2021, and all but two policymakers see rates staying at historic lows through the following year. The projections are the Fed's first since December.
The group also set a floor for its asset purchases, guaranteeing it would take in at least $80 billion in Treasurys each month and $40 billion worth of mortgage-backed securities.
"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," the committee said in a statement following its two-day meeting.
The central bank lowered its benchmark interest rate to a range of 0% to 0.25% in mid-March in one of its earliest moves to pad against the coronavirus pandemic's economic toll. It followed up its rate cuts with unprecedented lending programs extending credit to corporations, households, and municipalities.
Fed Chairman Jerome Powell expressed measured optimism about the May jobs report during a Wednesday-afternoon press conference. The Friday report shocked economists: Unemployment fell to 13.3% from 14.7% in April, while experts had anticipated a jump to roughly 20%. The positive report showed that relief policies played a role in aiding the economy, but the US still faces "considerable risks" in the immediate future, Powell said.
"The Fed is clearly signaling that we are not by any means out of the woods yet," said James McCann, a senior global economist at Aberdeen Standard Investments. "The jobs report was probably as much of a positive surprise to them as the rest of the market. But it doesn't change the fact that a recovery is going to take years, not months."
Powell also addressed concerns about the Fed's late rollout of the Main Street Lending Program. The chair said in Senate testimony last month that all nine credit facilities would be online by early June. He said on Wednesday that delays in opening the $600 billion small-business lending pool were used to improve the facility and widen its scope.
"This last set of changes we've made are very positive for the facility. We've used the time well, we think," he said, adding that the Fed's relief programs "are unique — there's no playbook here."
The chair said the committee did eye yield-curve control and its historic uses as a potential next step for ensuring the continuation of the economic recovery. Such policy involves the targeting of specific long-term interest rates through the purchase and sale of Treasury bonds. Powell told reporters that the
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