US economy to shrink 6.5% in 2020, no rate hike through 2022: Fed officials

Fed officials have estimated that the US economy will shrink 6.5% this year, in line with other forecasts, before expanding 5% in 2021.
US Federal Reserve Chairman Jerome Powell.(REUTERS)
US Federal Reserve Chairman Jerome Powell.(REUTERS)
Updated on Jun 10, 2020 11:47 PM IST
Copy Link
Washington | ByAssociated Press | Posted by Kanishka Sarkar

The Federal Reserve says it will keep buying bonds to maintain low borrowing rates and support the US economy in the midst of a recession. And it says nearly all the Fed’s policymakers foresee no rate hike through 2022.

The Fed has cut its benchmark short-term rate to near zero. Keeping its rate ultra-low for more than two more years could make it easier for consumers and businesses to borrow and spend enough to sustain an economy depressed by business shutdowns and high unemployment.

The central bank noted in a statement after its policy meeting ended Wednesday that the viral outbreak has caused a sharp fall in economic activity and surge in job losses.

Fed officials estimate that the economy will shrink 6.5% this year, in line with other forecasts, before expanding 5% in 2021. It foresees sees the unemployment rate at 9.3%, near the peak of the last recession, by the end of this year. The rate is now 13.3%.

At a virtual news conference Wednesday afternoon, Chairman Jerome Powell is expected to drive home the message that the economy remains in need of extraordinary help despite recent despite glimmers of a possible recovery, including a government report Friday that employers surprisingly added jobs in May.

Since March, the Fed has slashed its benchmark short-term rate, bought $2.1 trillion in Treasury and mortgage bonds to inject cash into markets and rolled out nine lending programs to try to keep credit flowing smoothly. Most analysts expect the Fed to pause and assess the economic landscape before embarking on any further actions, which could come at September’s meeting.

The Fed’s actions are credited with having helped fuel an extraordinary rally in the stock market, which has nearly regained its pre-pandemic high after a dizzying plunge in March.

And by committing to buy corporate bonds, thereby reinvigorating the market for such securities, the Fed has also ensured that corporations can continue to borrow. Its initiatives also include a first-ever program through which the Fed is buying state and local government debt to support the municipal bond market.

Many economists say those steps have prevented the downturn from worsening, by keeping credit flowing. This week, the National Bureau of Economic Research, the official arbiter of recessions, declared that the U.S. economy entered a recession in February.

One challenge for the Fed now is to shift its focus from the emergency actions it took in March and April to try to carry the economy through a shutdown, to what steps it will take to stimulate a recovery as businesses increasingly reopen.

In remarks last month, Fed Vice Chair Richard Clarida stressed that the viral outbreak remains a menace to the economy. But he also indicated that Fed officials want to see a few more months of data to gauge the economy’s health before determining their next steps.

SHARE THIS ARTICLE ON
Close Story
QUICKREADS

Less time to read?

Try Quickreads

  • Bangladesh foreign minister AK Abdul Momen during the inaugural session of NADI 2022 (Natural Allies in Development and Interdependence) "Asian Confluence River Conclave 2022", at Radisson Blu, in Guwahati on Saturday, May 28, 2022. (ANI)

    Refugees from Myanmar may turn to extremism: Bangladesh foreign minister

    Myanmar nationals staying in Bangladesh as refugees could turn to extremism, Bangladesh foreign minister AK Abdul Momen said on Saturday, as he sought help from India and other countries in the region to repatriate them. External affairs minister S Jaishankar, Assam chief minister Himanta Biswa Sarma and ambassadors and high commissioners of several southeast Asian countries, including Myanmar, attended the session.

  • Representative Image

    Porn clips played on display screens at airport in Brazil's Rio de Janeiro

    Passengers at an airport in Brazil's second-largest city of Rio de Janeiro were in for a shock when electronic displays at the facility began showing pornographic scenes--instead of advertisements and flight information--in an apparent case of hacking. Santos Dumont is the second airport in Rio de Janeiro, after the main Gaelao International Airport. Named after Brazilian aviation pioneer, Alberto Santos Dumont, it is both a public and military facility.

  • Representational image.

    At least 31 die in church stampede in southern Nigeria

    At least 31 people died in Nigeria on Saturday during a stampede at a church in the southern Rivers state, a police spokesperson said. Hundreds of people who had turned up to receive food at the church early on Saturday broke through a gate, causing the stampede, police spokesperson for Rivers state, Grace Iringe-Koko said.

  • Russian President Vladimir Putin attends a meeting in Moscow.

    Putin willing to discuss resuming Ukrainian grain shipments from Black Sea ports

    The Kremlin said Russian President Vladimir Putin told the leaders of France and Germany on Saturday that Moscow was willing to discuss ways to make it possible for Ukraine to resume shipments of grain from Black Sea ports. Putin spoke to French President Emmanuel Macron and German Chancellor Olaf Scholz over the phone.

  • A board at the Utopia School District. (AFP)

    After Uvalde tragedy, a Texas school says staff can carry guns on campus

    In the wake of Tuesday's shooting at an elementary school in Uvalde, Texas, in which 18-year-old Salvador Ramos killed 19 children and two teachers before being fatally shot by the police, the only school in the small town of Utopia, also in Texas, has said its teachers and staff can carry guns on campus to prevent an Uvalde-like tragedy.

SHARE
Story Saved
×
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Sunday, May 29, 2022