The jump in coronavirus cases in the United States and restrictions aimed at containing it have started to weigh on the economic recovery, said Federal Reserve chairman Jerome Powell, pointing to an apparent retraction by part of consumers and a slowdown in the rehiring of workers who are at home, particularly by small companies.
“We have seen some signs in recent weeks that the increase in virus cases and renewed measures to control it are beginning to weigh on economic activity,” Powell said at a news conference after the release of the central bank’s latest monetary policy statement.
The United States “has entered a new phase to contain the virus, which is essential to protect our health and our economy,” he said.
Powell’s comments, via videoconference, confirmed what many economists and other analysts had been citing in recent weeks, when coronavirus infections exploded in several states in the south and southwest of the country, dampening hopes for a rapid economic recovery.
The monetary policy statement released on Wednesday directly linked economic recovery to resolving a health crisis whose direction remains very uncertain. More than 150,000 Americans died of Covid-19, the respiratory disease caused by the new coronavirus.
“The path to the economy will depend significantly on the course of the virus,” said the Fed’s Federal Open Market Committee.
Fed policymakers have repeated promises to use their “full range of tools” to support the economy and keep interest rates close to zero for the time it takes for the economy to recover from the consequences of the epidemic, saying that the path of activity will depend significantly from the course of the coronavirus crisis.
“After sharp declines, economic activity and employment have increased somewhat in recent months, but remain well below their levels at the beginning of the year,” said the Fed after the end of its most recent two-day monetary policy meeting.
All members of the Fomc voted to maintain the interest rate target between zero and 0.25%, an interval in which it has been since March 15, when the virus began to hit the country.
“The Committee hopes to maintain this target range until it is certain that the economy has withstood recent events and is on track to meet its targets for maximum employment and price stability,” the Fed said in the statement.
“The most notable thing is the statement that the path of the economy will depend on Covid-19. The Fed is putting health again at the front and center of its statement, which is impactful and significant, ”said Nela Richardson, investment strategist at Edward Jones in St. Louis.
“It’s a little sinister, to be honest. We know that this virus is unpredictable. That phrase shows the primacy of Covid-19 in the Fed’s outlook and the uncertainty of its outlook because of that. ”
No change for now
The expectation was that Fed officials would spend part of their meeting debating whether to strengthen the so-called future orientation and how they would do it, perhaps promising that there would be no change in interest rates until unemployment and inflation rates meet explicit criteria.
The statement gave no hint of such a change, which many analysts hope will not happen until the September monetary policy meeting.
The Fed also said it will continue to buy at least $ 120 billion in Treasuries and mortgage-backed securities every month to stabilize financial markets.
The US Central Bank renewed its promise of low-interest rates the day before the release of a government report that should show a record 34% fall in economic production, in an annualized data, in the second quarter, when authorities adopted restrictions that closed companies and kept people isolated in an attempt to stem the spread of the coronavirus.
Fed members hoped that these measures would help contain the virus, allowing the economy to recover quickly, even fearing the possibility that infections could resurface and hamper the economic recovery.
The US central bank has launched nearly a dozen new loan and credit programs to combat the economic consequences of the epidemic. But the immediate outlook depends largely on where the infections come from and how much more US parliamentary fiscal support they will offer in that period.
Since the June monetary policy meeting, the epidemic has intensified, with an average of about 65,000 new cases detected daily, about three times the rate of infections in mid-June.
Deaths are also on the rise, and all this has prompted governors from California to Florida to impose new economic restrictions.
Employment growth, unexpectedly strong in May and June, now appears to be slowing. Consumer confidence has been affected.
In the meantime, government aid that was keeping millions of Americans’ spending will expire at the end of the week, unless Congress agrees to a new aid package. Republicans are divided over whether to support $ 1 trillion in new spending, and Democrats want a figure closer to the $ 3 trillion that Congress has already pledged to fight the crisis.
Small businesses, one of the pillars of the world’s largest economy, are also increasingly facing a breaking point as government subsidies dry up and it is time to honor commitments.