WASHINGTON — The Federal Reserve left interest rates unchanged and near zero at its meeting Wednesday as the central bank projected a gradual economic recovery from the pandemic-induced recession.
In their first economic projections this year, Fed officials indicated that they expect the unemployment rate to end 2020 at 9.3 percent and remain elevated for years, coming in at 5.5 percent in 2022. Output is expected to be 6.5 percent lower at the end of this year than it was in the final quarter of 2019.
The new forecasts predict a much slower path back to economic strength than the Trump administration — and perhaps the stock market — seems to expect as the economy climbs out of a virus-spurred downturn. The Fed skipped its quarterly economic summary in March as the pandemic gripped the United States, sowing uncertainty as business activity came to a near standstill.
“The ongoing public health crisis will weigh heavily 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 in the post-meeting statement that accompanied the data outlook.
The Fed said that it will continue buying government-backed debt “at least at the current pace” to sustain smooth market functioning, and that it “will closely monitor developments and is prepared to adjust its plans as appropriate.”
The Fed’s interest rate projections suggested that policy will remain on hold for years, leaving rates near rock-bottom for the foreseeable future.
The Fed Chair, Jerome H. Powell, will hold a web-based news conference at 2:30 p.m. While he has sounded wary about the path ahead, analysts are curious to hear his take on the economy as states gradually open and the job market stages an early rebound. There is no doubt that the economy has experienced a rapid, sharp hit, and the major question facing Mr. Powell and his colleagues is how quickly the country can recover.
The last time the Fed released projections was in December, when officials expected 2020 unemployment to close out at 3.5 percent with 1.9 percent inflation and 2 percent growth.
The coronavirus upended that outlook. Unemployment rocketed to 14.7 percent in April before easing to 13.3 percent in May. Economic activity tanked so sharply as states issued stay-at-home orders in March and April that the National Bureau of Economic Research announced this week that the United States entered a recession after the economy peaked in February.
The central bank’s release came hours after the Organization for Economic Cooperation and Development put out a report warning that the world economy faces the most severe downturn in a century and could experience a halting rebound.
“Extraordinary policies will be needed to walk the tightrope towards recovery,” said Laurence Boone, the O.E.C.D.’s chief economist.
The Fed’s caution and the O.E.C.D.’s pessimism contrasts with the more optimistic tone Treasury Secretary Steven Mnuchin took while testifying before Senators on Wednesday. He said in prepared remarks that the economy was “well-positioned for a strong, phased reopening of our country,” though he noted during the testimony itself that some sectors had sustained “significant damage.”
And those messages are very different from the one coming from President Trump, who has been celebrating on Twitter as stock indexes rally.
“NASDAQ HITS ALL-TIME HIGH. Tremendous progress being made, way ahead of schedule. USA!” he wrote on Twitter earlier on Wednesday.
Mr. Powell has emerged as a voice of economic caution since the pandemic took hold. He has warned that both monetary and fiscal policy must stand ready to do more to make sure the pandemic does not permanently scar the economy, and he has been clear that the Fed does not mistake its early successes in calming markets and reinvigorating lending as giving an all-clear signal.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risk,” Mr. Powell said on May 13.
Since then, some data points have come in above expectations. Unemployment was projected to increase to around 20 percent but it declined instead. Consumer spending is rebounding, though it remains below precrisis levels, based on real-time trackers.
The central bank has taken extraordinary steps already to support the U.S. economy. The Fed cut interest rates to near zero in a series of back-to-back meetings in March. It has been snapping up government-backed bonds to keep markets functioning normally, and has rolled out a series of emergency credit programs aimed at ensuring that businesses and state and local governments can borrow money.