Fed, "Zero Interest Rate Until 2022" (Comprehensive Report 2)

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) plans to maintain 'zero interest rates' until 2022. Following the COVID-19 outbreak, the Fed made a bold move in March to cut the benchmark interest rate by 1 percentage point to 0.00-0.25% to stimulate the economy, expressing its intention to keep ultra-low interest rates for at least two more years.

On the 10th (local time), the Fed announced at the Federal Open Market Committee (FOMC) regular meeting that it unanimously decided to keep the benchmark interest rate at the current level.

In the FOMC statement that day, the Fed explained, "The coronavirus outbreak is causing tremendous hardship," adding, "The ongoing public health crisis is putting strong pressure on economic activity, employment, and prices in the short term, and poses significant risks to the medium-term economic outlook."

The dot plot released on the Fed's website suggested that zero interest rates will be maintained until 2022.

For the first time since the COVID-19 crisis, the Fed disclosed its growth forecast. The U.S. economy is expected to contract by 6.5% this year but rebound with 5% growth next year. At the end of last year, the Fed had projected 2.0% growth for this year.

The unemployment rate is expected to fall to 9.3% by the end of this year, down from 13.3% in May. However, it is still projected to remain "the worst since World War II" by the end of this year. The Fed forecasts the unemployment rate will decrease to 5.5% in 2022.

While the Fed acknowledged that the U.S. economy is gradually recovering, it assessed that the pace remains uncertain. Accordingly, it reiterated its stance to expand liquidity supply through asset purchases and emphasized that it will deploy the full range of policy tools to support the U.S. economy.

Fed Chair Jerome Powell, during a virtual press conference immediately after the FOMC meeting, said, "The speed of the U.S. economic recovery is very uncertain," stressing that the pace of recovery depends on the containment of COVID-19. This is interpreted as a commitment to strong economic stimulus until a COVID-19 vaccine is developed.

The Wall Street Journal (WSJ) described Powell's remarks as "effectively acknowledging that an early economic recovery is unlikely."

Although the Fed did not announce additional economic support measures that day, it argued that further measures at the congressional level are necessary. Powell stated, "We are watching other tools such as yield curve control," indicating that the Fed is considering a yield cap, which involves unlimited purchases if certain bonds exceed a set interest rate.

The U.S. government also shares the recognition that measures are needed to drive economic recovery and is preparing such measures. Treasury Secretary Steven Mnuchin appeared at a Senate hearing that day and said, "I think another bipartisan bill to fund economic support will be necessary." He added that deregulation is also needed. Forbes, an economic media outlet, predicted that although Mnuchin did not mention detailed measures, it is highly likely that the support will include direct cash payments to individuals or funding for specific industries struggling due to COVID-19, such as travel, leisure, and retail.

This content was produced with the assistance of AI translation services.