Federal Reserve Leave Interest Rates At Zero Due To Unstable Economy

By: April Feng

On Wednesday, the Federal Reserve announced their intent to leave interest rates near zero as a result of the slowing economic recovery. Due to recent spikes in coronavirus cases, the economic recovery that many were dependent on has slowed to a standstill. According to Jerome H. Powell, the Fed chair, there is still a “long road ahead.”

From The New York Times, Powell states, “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check.” Despite slight improvements, “the pace of recovery looks like it has slowed” and cases have been rising again since June.

Over 14 million people lost their jobs in February due to the virus. Although there have been recent job gains, consumer spending and overall consumption has decreased, with labor market indicators suggesting that the economy is once more in decline. For those that were previously employed in industries like travel and restaurants, it will be especially difficult to find new job openings.

“There’s probably going to be a long tail where a large number of people are struggling to get back to work,” Mr. Powell stated, so the Federal Reserve would not even be considering raising rates.

As stated from the Federal Reserve FOMC statement, the Fed would keep low rates “until it is confident that the economy has weathered recent events.”

This announcement has come amid debates over continuing providing federal aid to struggling businesses and workers. According to Mr. Powell, government policy has “kept people in their homes, it’s kept businesses in business” and thus has been critical in helping the economy.

However, these plans need to continue to be kept up to continue supporting workers. The central bank has initiated nine lending programs, of which seven were set to expire around September. However, it was announced that they would be extended through the end of the year. These programs all help to keep credit flowing through the purchase of government-backed bonds.

More concrete plans will be expected at the next Fed meeting on September 15-16, in which the Federal Open Market Committee’s longer framework review would possibly be completed, according to Powell.

Michael Feroli, the chief U.S. economist at J.P. Morgan, stated, “The July F.O.M.C. meeting was expected to be a placeholder event until more important decisions are made at the next meeting in September.”





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