Fed Holds Rates Steady and Signals Continued Wariness


WASHINGTON — Federal Reserve officials made only minor adjustments to their policy statement Thursday, leaving rates unchanged and pledging to act as needed to protect the economy and sustain its recovery from the depths of the pandemic-spurred recession.

“Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” policymakers said in their post-meeting statement.

Fed Chair Jerome H. Powell, speaking at a news conference following the meeting, said the economic outlook is “extraordinarily uncertain” and called the rise in new coronavirus cases in both the United States and overseas “particularly concerning.”

“The pace of improvement has moderated,” Mr. Powell said, adding that while the housing market has recovered and spending on goods has been strong, “spending on services remains low,” in large part because people cannot gather closely.

The Fed slashed interest rates to nearly zero in March and has been buying huge quantities of government-backed bonds in an attempt to keep markets functioning smoothly and to stimulate demand.

Low rates do seem to be helping to fuel a recovery. Housing has been a bright spot in the pandemic-damaged economy, for instance, as families refinance to take advantage of mortgage savings and as buyers scramble to purchase new and existing houses. But government spending programs have also been an important driver of the rebound so far, keeping money flowing to businesses and households even as companies temporarily shut their doors and millions of people lost their jobs.

Now, the economy is teetering on an uncertain precipice as U.S. coronavirus cases rise and support programs run dry. The outcome of this week’s presidential and congressional election remains uncertain, making it hard to guess whether and when the government will renew forgivable small business loans, expanded unemployment insurance and other measures that have helped to keep businesses and families afloat.

The uncertainty comes while the economy has 11 million fewer jobs relative to February, based on official government figures that probably understate the full extent of employment loss. A jobs report on Friday is expected to show that employers added about 600,000 nonfarm workers in October, based on the median estimate in a Bloomberg survey of economists. While that is a high number by historical standards, it is a relatively lackluster figure when so many are out of work on a purportedly “temporary” basis.

Mr. Powell said the two biggest economic risks right now are the “further spread of the disease” and the likelihood that households will “run through the savings” they were able to accumulate as a result of government spending early in the pandemic, including stimulus checks and enhanced unemployment benefits.

While the Fed is prepared to act as needed to support the recovery, Mr. Powell once again said more fiscal support will be needed to help mitigate those risks.

“We can obviously support financial stability through our lending programs,” he said. “We’ll have a stronger recovery if we can get at least some more fiscal support, when it’s appropriate and at the size Congress thinks is appropriate.”

There is still more that the Fed could do to stimulate the economy, and Mr. Powell is likely to face queries about its next steps. The central bank could reinforce its pledge to keep interest rates low for an extended period of time. It could change up the communication around its bond purchases, or shake up their composition so that they tilt more toward longer-dated debt, all with the goal of making credit cheaper and keeping money flowing into the economy.

Yet such measures are no panacea. They benefit people who are in a position to buy houses and cars and can help the economy to recover in the medium to long term. But Fed policies are not suited to get money straight into the hands of the workers who have lost their jobs in the short term. Such targeted relief would have to come from Congress and the White House.

Mr. Powell is likely to face questions about the central bank’s suite of emergency lending programs. Since March, it has rolled out a series of efforts — many of them never tried before — to keep credit flowing to municipalities, corporations and within Wall Street’s inner workings.

Several of those programs are backed by funding from the Treasury Department, and could sunset after December, unless Mr. Powell and Treasury Secretary Steven Mnuchin agree to extend them.



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