Fed pledges to keep rates low as US economic recovery slows

The Fed chair noted that household spending on services “remains low” but said that spending on goods — which had helped drive the recovery this summer —“has moderated.”

The glum assessment shows that the Fed still sees the pandemic-stricken economy falling far short of its two major goals: maximum employment and price stability. Its officials are hoping that by keeping credit cheap, they can boost demand in the economy and help to set the stage for a job market recovery while also shoring up price gains, which have been chronically weak.

Besides leaving interest rates at rock bottom, where they have been since March 2020, the Fed is buying about $US120 billion ($157 billion) in government-backed bonds each month. While most investors expect the purchases to slow eventually, Powell has been clear that the economy remains far from the central bank’s targets, that officials are not yet ready to change course, and that they will broadcast it when they do see some change coming.

In his first news conference since lawmakers passed a $US900 billion stimulus package in December, Powell demurred when asked whether the economy needed another round of fiscal support, saying it was up to Congress and the Biden administration to make that decision.

But the Fed chair suggested more might be needed, saying a “key reason” for the strength of the economic recovery so far was a “strong and sustained” fiscal response from lawmakers.

“We’re a long way from a full recovery,” he said, noting that 9 million people remain out of work and that “many small businesses remain under pressure.”

The New York Times