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Fed Holds Rates Steady, Reiterates Support Amid Surging Cases

Economic Indicators Jul 29, 2020 02:02PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – The Federal Reserve kept rates unchanged Wednesday, and pledged to keep the monetary spigot wide open until the economy has weathered the impact of the virus.

The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25%.

"The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals," the Fed said in a statement.

The Fed acknowledged that economic activity had picked up somewhat in recent months, though conceded that it remained "well below" levels seen at the beginning of the year.

Fed members continued to stress that the economic outlook would depend on the path of the virus, which has spread rapidly in recent weeks and led to several states halting or rolling back reopening measures.   

"The path of the economy will depend significantly on the course of the virus. 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.

Recent economic data has validated the central bank's concerns as strength in the labor market and consumer confidence appear to be on the wane.

Still, the Federal Reserve's decisive policy action since the Covid-19 pandemic struck in March, has cushioned the blow to the economy, with many on Wall Street suggesting that gross domestic product bottomed in the second quarter of the year.

The Fed’s balance sheet ballooned to $7 trillion in June, up from $4.2 trillion in February, as the central bank rolled out emergency lending programs and stepped its bond purchasing program.

While the Fed has slowed its asset purchases - as it transitions from averting an economic crisis to paving the way for stabilization -  the central bank is in no hurry to further rein in the pace of purchases.

"To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning..." the Fed added. 

The Fed has been debating how it will adjust monetary policy as the economy recovers.

After the financial crisis, the central bank is widely believed to have tightened rates too soon on bets that inflation would gather steam. Inflation, however, struggled to reach the central bank's 2% target.

This time around, Fed members appear keen to avoid the same policy misstep, and have hinted that future monetary policy tightening should be tied to an economic metric such as inflation rising above 2%.

In a separate statement, the Fed said it would extend its U.S. dollar liquidity swap lines and temporary repo operations through March 31, 2021. 

Fed Holds Rates Steady, Reiterates Support Amid Surging Cases
 

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Comments (13)
Me comment
Me comment Jul 29, 2020 4:51PM ET
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They did. they should have raised them 5% so ordinary citizens can earn something on there meager savings.
Ernie Keebler
Ernie Keebler Jul 29, 2020 4:23PM ET
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Everyone is happy drinking the feds kool-aid, draining the reserves into the hands of the 1% we are doomed
Kahindi francis
Kahindi francis Jul 29, 2020 3:45PM ET
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Usd still gonna trade low with all the tensions surrounding the trade war with china plus the continued increase in virus infections..The fed has no cards left on the table..The congress should put in more efforts to save the dollar otherwise the only option left is to get the vaccine and get back the economy to normal..
Kenny Venezia
Kenny Venezia Jul 29, 2020 3:32PM ET
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the bomb has already gone off, I'm just holding on for the shock wave. Depression is coming.
Michael Angelo
Michael Angelo Jul 29, 2020 3:07PM ET
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Well after all is everything like Trump was asking, low rates and cheap dollar. Unfortunately all because of the virus. Now, is funny that his thoughts are correlated with the effects of a virus. Who is the virus here? Powell, again like all predecesors, is just a minion of the empire. The usd, unless a miracle, could have started the real "new" value that this weak economy is worth. Like it or not, decadence is just around the corner.
Million Dollar
Million Dollar Jul 29, 2020 2:48PM ET
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USD will loose its floor. Get out of usd denominated assets!!
jj mm
jj mm Jul 29, 2020 2:46PM ET
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next week dollar 96 minimum..
Jusuf Seferi
Jusuf Seferi Jul 29, 2020 2:46PM ET
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how much it is now?
Azizjon Boytemirov
Azizjon Boytemirov Jul 29, 2020 2:45PM ET
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usd iwas designed to loose its value
Miguel Garcia
Miguel Garcia Jul 29, 2020 2:18PM ET
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Good news for usd...
D Mergz
D Mergz Jul 29, 2020 2:13PM ET
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Next target 1.1850
 
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