US Fed keeps interest rates near zero amid election uncertainty


FE Team | Published: November 06, 2020 17:31:17 | Updated: November 12, 2020 13:17:10


US Fed keeps interest rates near zero amid election uncertainty

The US Federal Reserve has kept its benchmark interest rate unchanged at the record-low level of near zero amid uncertainty about the final result of the presidential election.

"Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year," the Fed said in a statement after concluding a two-day policy meeting on Thursday, adding the path of the US economy will depend significantly on the course of the coronavirus, reports Xinhua.

"The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the Fed said.

The central bank decided to maintain the target range for the federal funds rate at 0-0.25 per cent, pledging to use its full range of tools to support the US economy "in this challenging time."

The Fed expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with its assessments of maximum employment and inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for some time, according to the statement.

At a virtual press conference on Thursday afternoon, Fed Chairman Jerome Powell reiterated that the outlook for the economy is "extraordinarily uncertain" and will depend in large part on the success of efforts to keep the virus in check.

"The recent rise in new COVID-19 cases, both here in the United States and abroad, is particularly concerning. All of us have a role to play in our nation's response to the pandemic," Powell said, adding a full economic recovery is unlikely until people are confident that it's safe to re-engage in a broad range of activities.

Powell noted that the pace of US economic recovery "has moderated" in recent months, and more fiscal and monetary policy support is needed to bring the economy back to pre-pandemic levels.

"It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year. And it may take continued support from both monetary and fiscal policy to achieve that," he said.

The Fed meeting came as the United States added record-breaking 100,000 plus new COVID-19 cases in a single day on Wednesday, while people nationwide are waiting for the outcome of the presidential election.

"Although there was no policy change, the Federal Reserve, facing the possibility of a divided government in Washington, remains the only game in town when it comes to providing sustained accommodation to an impaired economy," said Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP.

The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of US treasuries and agency mortgage-backed securities to repair financial markets. It also unveiled new lending programs to provide up to 2.3 trillion US dollars to support the economy in response to the coronavirus outbreak.

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