clearn.png
Thursday March 4th, 2021 11:05PM

Fed wrestles with its next moves as virus stalls US economy

By The Associated Press

WASHINGTON (AP) — Federal Reserve officials are grappling this week with the timing and scope of their next policy moves at a time when the raging viral pandemic has weakened the U.S. economy.

No major changes are likely when the Fed releases a statement Wednesday after its two-day policy meeting ends and just before Chair Jerome Powell holds a news conference. But the central bank is working toward providing more specific guidance on the conditions it would need to see before considering raising its benchmark short-term interest rate, which is now pegged near zero.

Economists call such an approach “forward guidance,” and the Fed used it extensively after the 2008-2009 recession. The Fed probably won't provide such guidance until its next meeting in September, economists say. But given signs that the economy is stalling in the face of the pandemic and that several aid programs have expired as Congress debates another rescue package, there's a chance that Fed officials could update their guidance as early as Wednesday.

After its previous meeting last month, the Fed had signaled that it expected to keep its key short-term rate near zero through 2022. Since then, the pandemic's threat to the economy has appeared to worsen. According to the minutes of their June meeting, “various” Fed officials felt it would “be important in the coming months ... to provide greater clarity” about the future path of rates.

Some Fed watchers expect no rate increase until 2024 at the earliest given their bleak outlook for the economy and expectations of continued ultra-low inflation. But more specificity from the Fed could provide further assurance to businesses and households of a low-rate environment for years to come.

As the pandemic intensified in March, the central bank's policymakers slashed their key short-term rate to nearly zero and directed that the Fed buy roughly $2 trillion of Treasury and mortgage-backed securities. Those purchases were intended to ensure that lower borrowing rates would remain available for households and businesses to help spur spending and growth.

The Fed also launched nine lending programs to enable businesses and Wall Street banks to borrow at low rates. On Tuesday, the Fed said it would extend seven of those programs, which had been set to expire Sept. 30, through the end of the year.

One potential form of forward guidance would be for the Fed to announce that it won't raise rates until annual inflation has reached or exceeded its target of 2% for a specific period. This would be intended to allow inflation to rise above 2%, to offset inflation that has fallen below that target nearly continuously since 2012. (Inflation is now running at just 0.5%, according to the Fed's preferred gauge.)

In recent speeches and appearances, Fed policymakers have sounded largely pessimistic about the economy. Several, including Powell, warned in late May, as many states began allowing more businesses to reopen, that a resurgent virus could imperil any recovery.

Since then, confirmed case counts have soared around the country, especially in such large Sun Belt states as Florida, Texas, Arizona and California, though their case levels have generally flattened in the past week. The outbreaks have led at least 22 states to either pause or reverse their re-openings, thereby forcing companies to impose layoffs or to stop hiring.

The number of people applying for unemployment benefits has exceeded 1 million for 18 straight weeks. And other data, such as credit card spending, point to a pullback in spending.

Lael Brainard, a member of the Fed Board of Governors, said earlier this month that the resurgence of the virus around the country has underscored its severe threat to the economy.

“The recent resurgence in COVID cases is a sober reminder that the pandemic remains the key driver of the economy’s course,” she said in a speech. “A thick fog of uncertainty still surrounds us, and downside risks predominate.”

At his news conference Wednesday, Powell is likely to call for Congress to continue providing stimulus for the economy, as he has done before. The chairman has repeatedly stressed that the Fed has “lending powers, not spending powers,” and while he has usually avoided supporting specific policies, he has clearly urged Congress to spend more.

“He’s really pivoted from being the artful dodger to being quite direct," said Diane Swonk, chief economist at Grant Thornton, a tax and accounting firm.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Business, AP Business - Economy, AP Business - Industries, AP Business - Financial Services
© Copyright 2021 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Trump again pushes unproven drug as COVID-19 treatment
President Donald Trump is back to pushing unproven claims that an anti-malaria drug is an effective treatment for the coronavirus
10:27AM ( 13 minutes ago )
US consumer confidence tumbles in July as COVID-19 spreads
U.S. consumer confidence had a sharp drop in July to a reading of 92.6 as coronovirus cases in many parts of the country began rising again
10:16AM ( 24 minutes ago )
Iran fires missile at mock aircraft carrier amid US tensions
Iran’s paramilitary Revolutionary Guard has fired a missile from a helicopter targeting a mock-up aircraft carrier in the strategic Strait of Hormuz
10:13AM ( 27 minutes ago )
Associated Press (AP)
The Latest: Swedish approach: Virus cases trend downward
While coronavirus cases increase in Europe, Sweden continues a downward trend after a much-debated approach kept large parts of society open
10:02AM ( 37 minutes ago )
Malaysian ex-PM Najib given 12 years in jail in 1MDB scandal
A court has sentenced former Malaysian Prime Minister Najib Razak to serve 12 years in prison after finding him guilty in the first of several corruption trials linked to the multibillion-dollar looting of a state investment fund that brought down his government two years ago
9:46AM ( 54 minutes ago )
Pandemic hurts sales, profit for Pfizer amid restructuring
Drugmaker Pfizer on Tuesday reported a 32% plunge in second-quarter profit, as the global coronavirus pandemic limited marketing of new prescriptions for its medicines
9:45AM ( 55 minutes ago )
AP Business
World shares slip, gold retreats from record high
Global stock markets have largely turned lower after a mixed close in Asian trading
8:13AM ( 2 hours ago )
The Latest: British PM says 'duty' to protect UK from virus
British Prime Minister Boris Johnson says it is the government’s “duty” to protect the U.K. from a second coronavirus spike as he defended the decision to recommend against all but essential travel to Spain
8:12AM ( 2 hours ago )
US-China spats rattle world, prompting calls for unity
Antagonisms between the U.S. and China are rattling governments around the world, prompting a German official to warn of “Cold War 2.0” and Kenya’s president to appeal for unity to fight the coronavirus pandemic
7:45AM ( 2 hours ago )
AP Business - Economy
Pfizer sales take a hit during pandemic
Drugmaker Pfizer on Tuesday reported a 32% plunge in second-quarter profit, as the global coronavirus pandemic limited marketing of and new prescriptions for its medicines
7:57AM ( 2 hours ago )
Head of China CDC gets injected with experimental vaccine
The head of the Chinese Center for Disease Control and Prevention says he has been injected with an experimental coronavirus vaccine in an attempt to persuade the public to follow suit when one is approved
2:51AM ( 7 hours ago )
Experimental COVID-19 vaccine is put to its biggest test
Volunteers have rolled up their sleeves to take part in the biggest test yet of an experimental COVID-19 vaccine
8:27PM ( 14 hours ago )
AP Business - Industries
Stocks tick higher, gold rushes to record ahead of busy week
Stocks are ticking higher in early Monday trading on Wall Street, while gold rushes to a record at the start of a week packed with potentially market-moving events
10:10AM ( 1 day ago )
Why are coins hard to find during the pandemic?
Why is there a coin shortage during the pandemic
3:32AM ( 5 days ago )
Senate panel approves Trump's controversial Fed nominee
The Senate Banking Committee approved President Donald Trump’s choice of Judy Shelton for the Federal Reserve board of governors on a party-line vote, overcoming widespread questions about her qualifications for the Fed
3:59PM ( 6 days ago )
AP Business - Financial Services
Trump again pushes unproven drug as COVID-19 treatment
President Donald Trump is back to pushing unproven claims that an anti-malaria drug is an effective treatment for the coronavirus
10:27AM ( 13 minutes ago )
US consumer confidence tumbles in July as COVID-19 spreads
U.S. consumer confidence had a sharp drop in July to a reading of 92.6 as coronovirus cases in many parts of the country began rising again
10:16AM ( 24 minutes ago )
Iran fires missile at mock aircraft carrier amid US tensions
Iran’s paramilitary Revolutionary Guard has fired a missile from a helicopter targeting a mock-up aircraft carrier in the strategic Strait of Hormuz
10:13AM ( 27 minutes ago )
Mayors want US agents blocked from Portland, 5 major cities
The mayors of six U.S. cities are appealing to Congress to make it illegal for the U.S. government to deploy militarized agents to cities that don’t want them
10:12AM ( 28 minutes ago )
Altria expands sales of heated-cigarette as revenue slides
Marlboro-maker Altria said Tuesday that cigarette sales continue to decline as it pushes to expand sales of an alternative heated-tobacco product
10:06AM ( 34 minutes ago )