Fed confirms rate to remain at zero amid pandemic damage

Heather SCOTT
US Federal Reserve Chair Jerome Powell has pledged the central bank will use all its tools to support the economic recovery (AFP Photo/Eric BARADAT)

Washington (AFP) - With the economy still reeling from the damage inflicted by the coronavirus pandemic, the Federal Reserve confirmed Wednesday it will keep the benchmark interest rate at zero until the recovery is underway.

At the conclusion of its two-day meeting, members of the Fed's policy-setting Federal Open Markets Committee (FOMC) released economic projections showing they expect the economy to contract by 6.5 percent this year, while unemployment falls to 9.3 percent from its current 13.3 percent.

"The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world," the FOMC statement said.

"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 central bank warned.

As a result, the FOMC will keep the key rate at zero "until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals."

And the median forecast among FOMC members shows they expect the key rate to stay the same through 2022 at least, before edging back up near 2.5 percent over the longer term -- with only two central bankers projecting the rate would rise off zero in that year.

The Fed also said it will continue to work to ensure households and businesses have access to credit by continuing purchases of securities like Treasury bonds and mortgage-backed securities.

The central bank already cut rates to zero in March and has been pumping trillions of dollars into the economy -- essentially printing money -- amid the crisis.

This week, it again expanded its planned Main Street lending program for small and medium businesses.