‘Tremendous’ hardship means years of central bank support, Fed says

By Martin Crutsinger, The Associated Press | June 12, 2020 | Last updated on June 12, 2020
2 min read

The Federal Reserve has promised to use its “full range of tools” to pull the country out of a deep recession caused by a global pandemic, signalling that it would keep interest rates low through 2022.

In its semi-annual monetary policy report to Congress, the central bank said Friday that the Covid-19 outbreak was causing “tremendous human and economic hardship across the United States and around the world.”

In response, the Fed said it’s “committed to using its full range of tools to support the U.S. economy in this challenging time.”

The Fed’s report comes two days after a policy meeting where the central bank kept it benchmark interest rate at a record low of 0% to 0.25% and signalled that it planned to keep it there for some time. The Fed said it would keep buying billions of dollars of Treasury and mortgage-backed securities to support the operations of financial market.

Federal Reserve Chairman Jerome Powell will testify before congressional committees on the new report Tuesday and Wednesday. He is expected to face questioning from lawmakers eager to know how the central bank plans to further support the economy during what is expected to be the steepest economic downturn of the last seven decades.

During a news conference on Wednesday, Powell predicted that the recovery will likely be slow with “well into the millions” of Americans who will not be able to get their old jobs back.

Powell’s downbeat assessment of how long it could take labour market to recover along with other renewed fears about the pandemic’s impact on the economy helped trigger a huge selloff in the market on Thursday with the Dow Jones industrial average falling 1,861.82 points, or 6.9%.

After the market plunge, President Donald Trump sent out a tweet criticizing the Fed and Powell’s comments that a full economic recovery could take a long time.

“The Federal Reserve is wrong so often,” Trump tweeted. “I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021.”

In its report to Congress, the Fed noted the sharp deterioration that has occurred in the labour market with nearly 20 million jobs lost since February, “reversing almost 10 years of job gains.”

The report said, “The most severe job losses have been sustained by the socioeconomic groups that are disproportionately represented among low-wage jobs.”

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Martin Crutsinger, The Associated Press

Martin Crutsinger is a reporter with The Associated Press,  an American not-for-profit news agency headquartered in New York City and founded in 1846.