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Fed seeks to offer reassurance amid stimulus package

Washington—Armed with a new interest rate strategy, the Federal Reserve will seek to reassure the US economy rattled by the coronavirus downturn as it wraps up its policy meeting on Wednesday.

The two-day event concludes amid a renewed push by a top lawmaker in Washington to agree on an additional spending bill to prop up the economy following a historic collapse in GDP in the second quarter and data showing a worryingly high rate of new layoffs.

The United States is home to the world’s worst coronavirus outbreak with more than 194,000 deaths, and in the pandemic’s opening days the Fed slashed its benchmark lending rate to near-zero and rolled out trillions of dollars in liquidity lines to keep markets functioning.

But the continued fiscal support that Fed officials—including Chair Jerome Powell—say the world’s largest economy needs to weather the downturn has yet to be approved, and with nowhere to go on interest rates, economists predict the policy-setting Federal Open Market Committee (FOMC) will rather attempt show they are doing their part.

“America’s central bank is likely to emphasize a decidedly low rate outlook for years to come to help nurse the world’s biggest economy back to health after a record contraction,” said Joe Manimbo, senior market analyst at Western Union Business Solutions, referring to the second quarter when the business shutdowns caused GDP to collapse by a record 31.7 percent annualized.

As the meeting got underway on Tuesday, Nancy Pelosi, speaker of the Democrat-led House of Representative, announced a new attempt to break weeks of deadlock with the White House and Republican-controlled Senate on passing a new spending bill.

“We are committed to staying here until we have an agreement,” she said on CNBC, adding that she was “optimistic that the White House, at least, will understand that we have to do some things.”

When unemployment is low, FOMC meetings can be suspenseful affairs as committee members mull over whether or not to shift their benchmark rate.

But no longer. The Fed last month rolled out a new average inflation targeting policy that will keep rates lower for longer in a bid to maximize employment for the benefit of poor workers.

“There is little that is expected to come out of the meeting. Indeed, barring a major rebound in the virus, little is expected for the next couple of years,” economist Joel Naroff said.  “The members could keep phoning, or should I say videoing, it in.  It would save time and money.

Topics: Federal Reserve , US economy , stimulus package
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