WASHINGTON – Confronted with an economy gripped by recession and high unemployment, the Federal Reserve signaled Wednesday that it expects to keep its key short-term interest rate near zero through 2022.
At the same time, the Fed said it will keep buying about $120 billion in Treasury and mortgage bonds each month to maintain low longer-term borrowing rates in an effort to spur spending and growth.
The Fed’s message Wednesday, in a statement after its latest policy meeting and in a virtual news conference by Chair Jerome Powell, was that it’s ready to do more to help support a shaky economy that faces significant uncertainty. Powell acknowledged that he and other Fed policymakers have only a hazy view of how the economy will fare in the coming months, largely because no one knows how quickly businesses may regain their health or resume a normal pace of hiring.
By pegging its short-term rate to zero for the next two-plus years, the Fed is seeking to induce consumers and businesses to spend more to sustain an economy depressed by the coronavirus. Its benchmark rate influences a range of loans, including for homes, autos and credit cards.
“It is clear that the Fed does not anticipate a V-shaped economic recovery and is positioned to move forcefully to support the economy,” said Joe Brusuelas, chief economist at RSM, referring to an economy that snaps back as quickly as it shrank.
Stock prices initially rallied modestly after the Fed issued its latest policy statement at 2 p.m. Eastern time before most indexes closed in negative territory.
Powell noted that the job market “may have hit bottom” last month, when employers added a surprise 2.5 million jobs, according to a government report last Friday. But he underscored that nearly 21 million Americans remain unemployed and that one solid jobs report was hardly enough to ensure that the economy is back on track — or alter the Fed's intention to keep rates ultra-low.
“We’re not going to overreact to a single data point," he said. “We're not thinking about raising rates. We're not even thinking about thinking about raising rates."