Fed: COVID Will Weigh Heavily on Economic Activity

The Board of Governors of the US Federal Reserve has unanimously voted to maintain interest rates during the Federal Open Market Committee (FOMC) meeting on July 29.

The meeting also authorized the Fed to undertake open market operations as necessary to maintain the federal funds rate in a target range of 0% to 0.25%, as shown by the meeting minutes released on Wednesday, August 19.

In addition, the Fed will increase the System Open Market Account holdings of Treasury securities, agency mortgage-backed securities (MBS), and agency commercial mortgage-backed securities (CMBS) at least at the current pace to sustain smooth functioning of markets for these securities, with the aim of fostering effective transmission of monetary policy to broader financial conditions.

Once more, the Fed reiterated its commitment to using its full range of tools to support the US economy against the COVID-19 crisis, which is causing human and economic hardship across the United States and around the world, according to the meeting minutes.

According to the statement, the path of the economy will depend significantly on the course of the virus.

“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 Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

“To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.”