Fed says US economic recovery will be closely linked to course of coronavirus

US central bank says it will not consider raising interest rates

Graig Graziosi
Wednesday 29 July 2020 22:48 BST
Trump Adviser complains $600-per-week boost in unemployment benefits is too generous

The fate of the US economy is “deeply and significantly” tied to the course the coronavirus takes in the US, according to the US Federal Reserve.

The US central bank made the announcement on Wednesday during a meeting.

The Federal Open Market Committee said there were no planned changes to current monetary policy. It will still keep interest rates at near zero per cent, but pledged to increase efforts to support the country’s economic recovery if necessary.

Federal Reserve Chairman Jerome Powell said the bank wasn’t even considering a rate hike.

“We’re not even thinking about thinking about thinking about raising rates,” Mr Powell said.

The announcement comes as the Federal Reserve deals with a shortage of dollars across the globe.

The US dollar dropped to a two-year low earlier this week as a result of surging coronavirus cases in the US. The downturn in US currency valuation indicates investors are losing faith in the viability of a US economic recovery in the face of the pandemic.

Mr Powell said the virus and the nation’s economic recovery were inextricably linked, and that spending — which only the US Congress can approve — was a necessary component of that recovery.

To combat the shortage, the Federal Reserve is extending emergency swap lines with other central banks, and establishing a repurchasing facility that will allow international monetary authorities to exchange Treasuries for dollars.

“These facilities were established in March 2020 to ease strains in global dollar funding markets resulting from the Covid-19 shock and mitigate the effect of such strains on the supply of credit to households and businesses, both domestically and abroad,” the Federal Reserve said in a statement. “The extensions of these facilities will help sustain recent improvements in global US dollar funding markets by maintaining these important liquidity backstops.”

The repurchasing facility is meant to “support the smooth functioning of the US Treasury market by providing an alternative temporary source of US dollars other than sales of securities in the open market”.

Congress is working on a second coronavirus stimulus package to help Americans who have been struggling financially with the massive job loss caused by lockdowns to contain the virus.

A sticking point in the negotiations have been Senate Republicans‘ desire to cut the $600 unemployment benefits currently offered to jobless Americans, which they claim “disincentivises” workers to look for new jobs.

Although Mr Powell did not speak directly to the claim, he did note that so long as the virus continues to ravage the country, workers — especially those in public-facing jobs — would likely be hesitant to return to work.

“There won’t be enough jobs for them ... and those people are going to need support if they are to be able to pay their bills,” he said.

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