Fed Still in Crisis-Fighting Mode as Recovery Appears to Moderate
The Federal Reserve on Wednesday left its key overnight interest rate near zero and made no change to its monthly bond purchases, pledging again to keep those economic pillars in place until there is a full rebound from…
The Federal Reserve on Wednesday left its key overnight interest rate near zero and made no change to its monthly bond purchases, pledging again to keep those economic pillars in place until there is a full rebound from the pandemic-triggered recession.
That hasn’t happened, and in the statement released after the end of their latest two-day meeting, U.S. central bank policymakers flagged a worrying slowdown in the pace of the recovery.
In a news conference after the meeting, Fed Chair Jerome Powell noted the economy’s resilience, with major industries like housing, financial services and others adapting to the coronavirus pandemic with new technologies and strategies.
But the economy also lost jobs in December, a large chunk of the workforce will likely remain sidelined until the health crisis eases, and Powell said the Fed’s rescue effort will not end until those Americans are working again.
“You cannot adapt motels, sports venues, movie theaters, restaurants, bars,” to function during a pandemic, Powell said. “That is millions and millions of people. You are just going to have to defeat the pandemic … We have not done it yet. We need to finish the job. It is within our power to do that as a country this year.”
His language marked a shift in the Fed’s rhetoric to both take full account of the potential boost to the economy that could come through widespread vaccinations and immunity, and to acknowledge the long slog the country faces on the road back to full employment.
Coronavirus vaccines were just being approved when the Fed held its last policy meeting in December. About 25 million doses of vaccine have been administered since then – Powell said he had taken the first of two shots – and the Biden administration is moving to accelerate distribution.
The sense of an approaching endgame to the crisis prompted the Fed to remove a reference in its statement to “medium term” risks from the pandemic, the most tangible incorporation so far of the impact of the vaccine into the central bank’s thinking.