Federal Reserve warns U.S. recovery is stalling

01 Août, 2020, 06:59 | Auteur: Auguste Feret
  • FXStreet

"The path of the economy will depend significantly on the course of the virus", the central bank's policy-setting Federal Open Market Committee (FOMC) said.

"Chairman Powell said that high-frequency data such as credit card purchases, travel, restaurants visits and the like suggested that the USA economy began to slow after virus cases began to accumulate in early June though whether that would continue is uncertain".

"It looks like the data are pointing to a slowing in the pace of the recovery", Fed Chair Jerome Powell said at a news conference, pointing to an apparent pullback by consumers and a slowdown in the rehiring of furloughed workers, particularly by small businesses.

Deaths from Covid-19, the respiratory illness caused by the virus, are also on the rise.

"But they can't tame the virus or manufacture demand, and that's what the economy desperately needs in order to bounce back", he said.

The dollar briefly extended its decline following the decision, while USA stocks maintained their gains and gold remained buoyant.

The vote, to leave the federal funds target rate in a range of 0 per cent to 0.25 per cent, was unanimous. On Wednesday, Powell said the economy's path forward will partially depend on policy actions taken at all levels of government to provide relief and support as needed.

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"It's a bit ominous, to be frank".

If official economic data backs up early indications of a decline in growth, the Fed could ease policy further, Powell signalled, including by potentially promising no changes to interest rates until unemployment and inflation rates meet explicit benchmarks.

It renewed its low-rate vow a day ahead of a government report expected to show a record 34% drop in annualized economic output last quarter, when authorities imposed lockdowns that closed businesses and kept people home in a bid to slow the spread of the coronavirus.

The US central bank has rolled out almost a dozen new lending and credit programs to fight the economic fallout from the epidemic.

Its rate-setters warned the Covid-19 crisis will "weigh heavily" on activity and poses "considerable risks" to the economic outlook.

Since the Fed's last policy meeting in June, the epidemic has intensified, with an average of around 65,000 new cases detected each day, about three times the pace of mid-June. Republicans are split over whether to support $1 trillion in new spending, and Democrats want a figure closer to the $3 trillion Congress has already committed to fight the crisis.

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