Sun, Aug 07, 2022 @ 21:17 GMT
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Fed Markedly Downgraded Economic Assessments on Sharp Decline in Activities and Surge in Unemployment

While maintaining all monetary policy measures unchanged in April, FOMC sent a more negative message about the economy. The members noted the sharp deterioration in economic activities and a jump in unemployment, cautioning that the negative impacts could prolong in the medium term. The Fed pledged to maintain the ultra expansionary policy announced in March. It also indicated that there is room to increase stimulus if needed.

On macroeconomic assessment, the Fed indicated that the coronavirus outbreak has caused “tremendous human and economic hardship” in the US and around the world. The members acknowledged “sharp” declines in economic activity and “a surge” in job losses. Meanwhile, “weaker demand and significantly lower oil prices are holding down” inflation. The Fed added that the pandemic will continue to “weigh heavily on economic activity, employment, and inflation in the near term”. It will continue to pose “considerable risks to the economic outlook over the medium term”.

The forward guidance reinforced to maintain the current ultra expansionary policy and pledged to do more if needed. In March, the Fed lowered the policy rate to the effective lower bound of 0-0.25%. It promised to “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 members also pledged to “using its full range of tools to support the US economy in this challenging time”. Concerning QE infinity, the Fed reiterated that it will continue to buy Treasury bonds and MBS “in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions”. The Fed is “prepared to adjust its plans as appropriate”. The references about Fed funds rate and QE are largely the same as those used in the March statements.

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