"We are a long way from a full recovery," says Fed Chair Jerome Powell
The Federal Reserve pledged on Wednesday to keep interest rates low well after the U.S. economy has recovered from the coronavirus pandemic.
The central bank's rate-setting body, the Federal Open Markets Committee, downgraded its assessment of the economic recovery, which slowed in the second half of 2020. However, policymakers said the economy is poised for a strong rebound in the second half of 2021 assuming COVID-19 vaccinations become widespread.
"The path of the economy will depend significantly on the course of the virus, including progress on vaccinations," the FOMC said in a statement.
The statement removed earlier phrases that said the pandemic was weighing on the economy in the "near term" and that it posed risks "over the medium term." The changes indicate that Fed officials aren't sure how long the uncertainty will last, something Fed Chairman Jerome Powell reiterated at a press conference Wednesday after the FOMC statement.
"The risks are in the near term, frankly. It's the rollout of the vaccine, it's the new strains which are more contagious, it's the continued spread of the virus," he said.
"We are a long way from a full recovery," Powell added, noting that 9 million Americans remain unemployed due to the pandemic, or as many jobs that were lost at the peak of the Great Recession.
Hiring has slowed for six straight months, and the restaurant industry shed nearly half a million jobs in December alone. Retail sales have declined for three straight months amid the surge in infections. And while the official unemployment rate is 6.7%, a full quarter of Americans are either not working or unable to get a job paying above poverty-level wages, according to the Ludwig Institute for Shared Economic Prosperity.
Easy money for years?
At the same time, the Fed has signaled it expects to keep its key short-term rate at a record low between zero and 0.25% through at least 2023. Earlier this month, Vice Chair Richard Clarida said he expects the Fed's billions in additional bond purchases to extend through the end of this year, which would mean continued downward pressure on long-term loan rates.
Powell has been vocal in pushing Congress to inject more money into the economy since the pandemic burst across the U.S. nearly a year ago. Since the Fed's last meeting, a $900 billion aid package was signed into law and vaccine distribution has begun.
Powell himself has received the first dose of the vaccine, he revealed on Wednesday. The U.S. is vaccinating about 1 million people a day, which puts it "in a better position than most," economists at Capital Economics wrote in a note. Still, they expect the Fed to keep interest rates near zero at least until 2024.
The Associated Press contributed reporting.