Pandemic as a risk factor: the US Federal Reserve keeps its feet still

Nothing new in Washington: The Federal Reserve is not touching the extremely low interest rates in the United States. The coronavirus pandemic is still too uncertain a variable for central bankers. And the presidential election is also causing uncertainty.

The US Federal Reserve (Fed) will not make any changes to its already ultra-loose monetary policy shortly after the presidential election. The key interest rate will remain in the extremely low range of 0 to 0.25 percent for the foreseeable future, and the billion-dollar bond purchases to support the economy will continue as usual. The central bank announced. A change in course was not expected on the financial markets.

The Fed emphasized that the corona pandemic continues to pose a significant risk despite the recent economic recovery in the USA and that the economy is still significantly weaker than at the beginning of the year. "The ongoing health crisis will continue to burden economic activity, employment and inflation," said the central bank's statement.

At a press conference, Fed Chairman Jerome Powell said that the recovery in the economy and the labor market had recently weakened. As early as mid-September, the monetary authorities had signaled that key interest rates should remain close to zero for years. This has now been confirmed once again. After the corona pandemic had spread to the United States in March, the central bankers lowered interest rates in two large steps to the current level. In addition, the Fed is pumping additional liquidity into the financial markets through multi-billion dollar bond purchase programs in order to boost the economy with the flood of money.

The Fed also reiterated its new line of temporarily allowing inflation rates above its price target of two percent. The central bank only introduced this new strategy a few months ago. The background to this is the unusually weak inflation for a long time, even in better economic times. The Fed is mandated to strive for both "maximum employment" in the labor market and economically healthy inflation.

US election with crippling effect

How much the corona crisis continues to burden the US economy was also evident in the course of the day from new data from the Labor Department. According to this, 21.5 million people recently received some form of unemployment benefit. In the past week, 751,000 were added – although a lot of ground has been made up in the job market since the unprecedented slump at the beginning of the crisis, this is still a dramatically high value in historical comparison. Central bank chief Powell himself has repeatedly appealed to politicians to get further state aid for the troubled economy on the way.

Many branches of the economy depend on support. The parties had not been able to agree on a new economic stimulus program before the elections. In another hangover, the pressure on the Fed to act could increase rapidly to provide assistance with further monetary policy easing.

The fact that the Fed is keeping quiet in the current political environment is anything but surprising. The US election has not yet been decided, and legal disputes are looming between President Donald Trump and his challenger Joe Biden. In any case, the central bank mostly holds back in times of political elections. However, Powell described the recent surge in corona infections in the US as worrying. A full economic recovery is only possible when people feel safe.

. (tagsToTranslate) economy (t) 2020 US presidential election (t) Sars-Cov-2 (t) pandemics (t) Fed (t) interest rate policy (t) Jerome Powell