Thursday June 24th, 2021 9:11AM

Fed keeps rate near zero but sees brighter economy in 2021

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — The Federal Reserve said Wednesday that it will keep buying government bonds until the economy makes “substantial” progress — a step intended to reassure financial markets and keep long-term borrowing rates low indefinitely.

The Fed also reiterated after its latest policy meeting that expects keep its short-term benchmark interest rate near zero through at least 2023. The Fed has kept its key rate there since March, when it took a range of extraordinary steps to fight the pandemic recession by keeping credit flowing.

In a series of economic projections Wednesday, though, Fed officials painted a brighter picture for next year, compared with its previous projections in September. The improvement likely reflects the expected impact of new coronavirus vaccines. The policymakers now foresee the economy contracting 2.4% this year, less than the 3.7% decline it envisioned in September. For next year, in anticipation of a rebound, the officials have upgraded their growth forecast from 4% to 4.2%.

By the end of 2021, the Fed expects the unemployment rate to fall to 5% from the current 6.7% — lower than the 5.5% rate it had forecast in September.

The Fed's latest policy statement coincides with an economy that is stumbling and might even shrink over the winter as the raging pandemic forces new business restrictions and keeps many consumers at home. Weighing the bleak short-term outlook and the brighter long-term picture has complicated the Fed's policymaking as it assesses how much more stimulus to pursue.

At a news conference, Fed Chair Jerome Powell acknowledged that challenge. While the economy and job market should rebound strongly in the second half of 2021, he said, “the issue is the next four to five months” as the virus keeps weakening growth.

Powell also noted, as he often has before, that the pandemic recession has fallen most painfully on the most disadvantaged American households.

“Economic dislocation has upended many lives and created great uncertainty about the future,” Powell said.

With its benchmark rate already near zero, the Fed has turned to bond purchases, buying $80 billion of Treasury securities and $40 billion of mortgage-backed bonds a month. Those moves indirectly lower rates on mortgages, auto loans and credit cards, with the aim of encouraging more borrowing and spending.

Before Wednesday, the Fed had given no guidance on how long it would buy Treasury and mortgage bonds. Saying it wants to await “substantial” economic progress suggested that the central bank envisions a lengthy time frame for those purchases.

Powell and many other Fed officials have repeatedly urged Congress to approve more economic aid to carry the economy through what's expected to be a financially painful winter, with cold weather foreclosing outdoor dining and rising virus cases discouraging many Americans from shopping in stores, going to gyms or traveling.

Congressional leaders are considering a $748 billion relief package that would provide extended unemployment benefits, more loans for small businesses and possibly another round of stimulus checks for individual Americans.

At his news conference, Powell applauded Congress' belated move to enact another rescue aid plan.

“This looks like a time where what is really needed is fiscal policy," he said, "and it’s a very positive thing that we may finally be getting that.”

Recent economic reports have generally reflected a sharply slowing recovery. On Wednesday, the Commerce Department reported the sharpest drop in retail sales in seven months. Americans held back on spending in November at the start of the holiday shopping season, which typically accounts for a quarter or more of retailers' annual sales.

Sales tumbled across the board — from clothing, electronic and furniture stores to department stores and restaurants. The only two bright spots were online and grocery store sales.

The retail sales report was the latest evidence that the pandemic is slowing the U.S. economy as businesses grapple with tighter restrictions and millions of consumers stay away from stores.

Last week, the number of people seeking unemployment aid rose for the third time in four weeks, evidence that companies are increasingly cutting jobs nine months since the erupted of the pandemic caused a deep recession.

The Fed’s new guidance on bond purchases marks a shift from its previous statements, when it said it would simply keep buying bonds “over the coming months.”

But providing a more specific timeline ensures that financial markets will not anticipate an earlier reduction in the purchases that could cause investors to push up rates earlier than the Fed wants. Longer-term rates reflect investor expectations for future borrowing costs. So reducing expected future rates keeps current rates lower.

“It’s helpful to be as clear as you can be about your intentions,” said Bill English, a former Fed official who teaches finance at the Yale School of Management.

Some economists had expected the Fed to announce a shift in its bond purchases by buying more longer-term bonds and fewer shorter-term securities — a step they could still take in future meetings.

Such a move would seek to deliver more immediate help for consumers and businesses. Buying more 10-year Treasurys, for example, lowers their yield, and the 10-year yield influences mortgage rates and other borrowing costs. Yields on two- or three-year bonds, by contrast, don’t affect many other rates.

But the Fed may prefer to keep that step in reserve in the event that the economy significantly worsens next year. Or it may also see it as a more effective move when the economy is reopening and people and businesses want to borrow more and expand.

On Wednesday, Powell stressed that the Fed will consider all its options to strengthen growth.

“We are committed to using our full range of tools to support the economy .. until the job is done," he said. "No one should doubt that.”

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Online Headlines - Washington, AP Online Congress News, AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services, AP Business - Personal Finance, AP Business - Real Estate
© Copyright 2021
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
US angling to secure more of Pfizer's coronavirus vaccine
U.S. officials say they’re actively negotiating for additional purchases of Pfizer’s coronavirus vaccine after passing up a chance to lock in a contract this summer because it was still unclear how well the shots would work
2:05PM ( 5 minutes ago )
Fed keeps rate near zero but sees brighter economy in 2021
The Federal Reserve will keep buying government bonds until the economy makes “substantial” progress, a step intended to reassure financial markets and keep long-term borrowing rates low
2:03PM ( 8 minutes ago )
Google glitch, snowstorm bring virtual learning frustrations
A Google services outage this week and potential impacts from a snowstorm in the Northeast highlight the fragile chain of connectivity that's powering widespread remote learning during the coronavirus pandemic
1:57PM ( 14 minutes ago )
Associated Press (AP)
IS widow convicted in Charlie Hebdo, kosher market attacks
The fugitive widow of an Islamic State gunman and a man described as his logistician have been convicted of terrorism charges in the trial of 14 people linked to the January 2015 attacks in Paris against the satirical Charlie Hebdo newspaper and a kosher supermarket
1:32PM ( 39 minutes ago )
Nigerians anxious after 330 boys kidnapped by extremists
Anxiety has overwhelmed many parents in Nigeria’s northern village of Kankara who await word on their sons who are among the more than 330 kidnapped by extremists from a government boys’ school
1:22PM ( 48 minutes ago )
The Latest: Buttigieg recalls struggles of Clinton nominee
Transportation secretary nominee Pete Buttigieg, who will be the first openly gay person to serve in a Cabinet, has tipped his hat to a Bill Clinton-era ambassadorial nominee whose nomination was blocked by Senate Republicans because of his sexuality
1:00PM ( 1 hour ago )
AP National News
'With reservations': Trump voters grapple with Biden's win
For weeks, President Donald Trump has been on a mission to convince his loyal base his victory was stolen and the contest was rigged
10:51AM ( 3 hours ago )
Germany enters harder lockdown as virus deaths hit new high
Germany has hit a new record level of deaths from the coronavirus as it enters a harder lockdown, closing shops and schools to try to bring down stubbornly high new cases
10:47AM ( 3 hours ago )
US brands Vietnam, Switzerland as currency manipulators
The U.S. Treasury Department has branded Vietnam and Switzerland as currency manipulators while putting China and nine other countries on a watch list
10:23AM ( 3 hours ago )
AP Online National News
Biden introduces ex-rival Buttigieg as transportation pick
President-elect Joe Biden has introduced former Democratic primary rival Pete Buttigieg as his nominee for transportation secretary
12:28PM ( 1 hour ago )
High court agrees to hear NCAA athlete compensation case
For the first time in more than three decades, the Supreme Court will hear a case involving the NCAA and what it means to be a college athlete
12:26PM ( 1 hour ago )
The Latest: Biden touts Cabinet diversity, names Buttigieg
President-elect Joe Biden says his Cabinet will be more representative of the American people than any other in U.S. history
12:26PM ( 1 hour ago )
AP Online Headlines - Washington
Trump asking about special prosecutor for Hunter Biden
President Donald Trump is considering pushing to have a special counsel appointed to advance the federal tax investigation into the son of President-elect Joe Biden
12:54AM ( 13 hours ago )
Trump voters accept Biden victory 'with reservations'
For weeks, President Donald Trump has been on a mission to convince his loyal base that his victory was stolen and the contest rigged
12:19AM ( 13 hours ago )
Negotiators report progress on long-delayed COVID aid bill
Top Capitol Hill Republicans are laboring to keep the price tag for a long-delayed COVID-19 aid package in check, seeking to prevail in a battle over help for state and local governments, while capping the cost of bonus jobless benefits and direct payments sought by Democrats
10:36PM ( 15 hours ago )
AP Online Congress News
EU postpones $109 million aid to Ethiopia over Tigray access
The European Union has postponed aid worth $109 million in budgetary support to Ethiopia over lack of access to Ethiopia’s Tigray region to deliver humanitarian aid amid the conflict
1:27PM ( 48 minutes ago )
The Latest: Italy considers tighter limits during holidays
The Italian government is weighing even tighter restrictions over the Christmas holiday to avoid a new resurgence
12:24PM ( 1 hour ago )
US stock indexes edge higher a day after setting records
Stocks edged higher in midday trading as investors continue to balance hope for additional aid from Washington with a spike in virus cases that is still holding back a broad economic recovery
12:02PM ( 2 hours ago )
AP Business
Australia to seek WTO intervention in barley row with China
Australian Trade Minister Simon Birmingham says Australia will ask the World Trade Organization to intervene in its dispute with China over barley and expects other nations to become involved in the case
8:05AM ( 6 hours ago )
EU chief von der Leyen sees progress in Brexit talks
The EU Commission President says she sees clear progress in the trade talks with the United Kingdom
5:35AM ( 8 hours ago )
World stocks advance after stimulus talks lift Wall St
Shares have risen in Europe and Asia after revived hopes for more aid for the U.S. economy broke a four-day losing streak on Wall Street
4:06AM ( 10 hours ago )
AP Business - Economy
San Francisco board rebukes naming hospital for Facebook CEO
San Francisco supervisors overwhelmingly approved a resolution to condemn the naming of the city’s public hospital for Facebook co-founder Mark Zuckerberg and his wife, Dr. Priscilla Chan
8:05PM ( 18 hours ago )
World shares mixed as investors eye vaccines, US stimulus
Shares have opened higher in Europe after a lackluster day in Asia as investors wait to see if Congress can break a logjam on delivering more aid to people, businesses and local governments affected by the coronavirus pandemic
4:21AM ( 1 day ago )
Asian shares decline following lackluster day on Wall Street
Asian shares are lower after a lackluster day on Wall Street as investors wait to see if Congress can break a logjam on delivering more aid to people, businesses and local governments affected by the coronavirus pandemic
2:33AM ( 1 day ago )
AP Business - Financial Markets
The Latest: Deaths rising in Pakistan with Karachi hard hit
The number of daily COVID-19 deaths in Pakistan has crossed 100 for the first time in five months with the virus spreading fast in the financial capital of Karachi
2:04AM ( 12 hours ago )
The Latest: S. Korea reports new daily high, mulls new steps
South Korea has reported another high in daily coronavirus increases as health officials face growing pressure to enforce stricter social distancing to slow the spread in the capital area
1:44AM ( 12 hours ago )
Florida might shut down bay known nationally for its oysters
A Florida agency is expected to shut down oyster harvesting in Apalachicola Bay through the end of 2025 on Wednesday
1:12AM ( 13 hours ago )
AP Business - Industries
Across US and Europe, pandemic's grip on economies tightens
The worsening of the viral pandemic across the United States and Europe is threatening their economies and intensifying pressure on governments and central banks on both continents to intervene aggressively
5:35PM ( 4 days ago )
Inflation still a no-show, US wholesale prices up just 0.1%
U.S. wholesale prices edged up a slight 0.1% in November as weak demand caused by the pandemic has kept inflation at extremely low levels
10:16AM ( 5 days ago )
US long-term mortgage rates flat; 30-year at 2.71%
U.S. long-term mortgage rates were unchanged this week, remaining at record low levels against the backdrop of an economy punished by the pandemic
8:09PM ( 5 days ago )
AP Business - Financial Services
Google glitch, snowstorm bring virtual learning frustrations
A Google services outage this week and potential impacts from a snowstorm in the Northeast highlight the fragile chain of connectivity that's powering widespread remote learning during the coronavirus pandemic
1:57PM ( 21 minutes ago )
'If not one thing, it's another': Northeast preps for storm
The Northeast is girding for a major snowstorm at a key moment in the coronavirus pandemic
1:56PM ( 22 minutes ago )
Vaccinations reach nursing homes, as California faces crisis
The first COVID-19 vaccinations are underway at U.S. nursing homes, where the virus has killed upwards of 110,000 people, even as the nation struggles to contain a surge so alarming that California is dispensing thousands of body bags and lining up refrigerated morgue trailers
1:47PM ( 30 minutes ago )
Prague zoo's month-old Sumatran orangutan finally has a name
Prague’s zoo says it's finally completed the process of naming a critically endangered Sumatran orangutan born in the park on Nov 17
1:47PM ( 31 minutes ago )
Chinese capsule returns to Earth carrying moon rocks
A Chinese capsule has returned to Earth with the first fresh samples of rock and debris from the moon in more than 40 years
1:44PM ( 34 minutes ago )