US Federal Reserve keeps policy rates unchanged as pandemic hits economy

Marco Green
August 1, 2020

Russ Mould, investment director at AJ Bell, said there was "disappointment" among investors at the Fed's warning recovery depended on the course of the virus.

Asian markets mostly edged up today after the Federal Reserve pledged to provide as much support as necessary to back up the U.S. economy but trader sentiment remained clouded by a fresh wave of virus infections that threatens to throw any global recovery off track.

Consumer confidence has taken a hit.

The policymakers voted unanimously to hold rates steady between a range of 0pc and 0.25pc and reiterated their pledge to use their "full range of tools to support the United States economy".

In a widely expected move, the Fed on Wednesday kept its benchmark overnight lending rate near zero.

"We are not even thinking about thinking about thinking about raising rates", Powell said, noting the economic recovery will take a long time because millions of people working in heavily affected industries like hotels or restaurants won't have jobs to go back to any time soon. "Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year", Fed stated in its policy review.

The dollar's decline came as investors started to doubt the conventional wisdom that USA economic growth and investment returns from the US currency would be higher than many other countries. The dollar fell to a two-year low against a basket of currencies. Lloyds (LLOY.L), one of the UK's largest banks, became the latest lender to set aside billions more to deal with bad loans because of COVID-19, while new data also showed British carmakers suffering their worst quarter since 1954, hitting vehicle stocks. "That sentence shows the primacy of COVID-19 in their outlook and the uncertainty of their outlook because of it", Richardson said. The FOMC also reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities "at least at the current pace" over coming months.

The US central bank has rolled out almost a dozen new lending and credit programs to fight the economic fallout from the epidemic.

That's prompted governors from California to Florida to impose new economic restrictions. Small businesses, a mainstay of the world's largest economy, are also increasingly facing a breaking point as government grants run dry and payments come due.

Other reports by Click Lancashire

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