Fed wrestles with its next moves as virus stalls US economy
WASHINGTON (AP) — Federal Reserve officials are grappling this week with the timing and scope of their next policy moves at a time when the raging viral pandemic has weakened the U.S. economy.
No major changes are likely when the Fed releases a statement Wednesday after its two-day policy meeting ends and just before Chair Jerome Powell holds a news conference. But the central bank is working toward providing more specific guidance on the conditions it would need to see before considering raising its benchmark short-term interest rate, which is now pegged near zero.
Economists call such an approach “forward guidance,” and the Fed used it extensively after the 2008-2009 recession. The Fed probably won't provide such guidance until its next meeting in September, economists say. But given signs that the economy is stalling in the face of the pandemic and that several aid programs have expired as Congress debates another rescue package, there's a chance that Fed officials could update their guidance as early as Wednesday.
After its previous meeting last month, the Fed had signaled that it expected to keep its key short-term rate near zero through 2022. Since then, the pandemic's threat to the economy has appeared to worsen. According to the minutes of their June meeting, “various” Fed officials felt it would “be important in the coming months ... to provide greater clarity” about the future path of rates.
Some Fed watchers expect no rate increase until 2024 at the earliest given their bleak outlook for the economy and expectations of continued ultra-low inflation. But more specificity from the Fed could provide further assurance to businesses and households of a low-rate environment for years to come.
As the pandemic intensified in March, the central bank's policymakers slashed their key short-term rate to...
