Fed vows to continue supporting recovery

Posted on Dec. 2020 at 20:52Updated Dec 16. 2020 at 22:30

The central bank will continue to pursue an accommodating policy. At the end of the last Monetary Policy Committee meeting of the year, Fed Chairman Jerome Powell pledged to continue working for “Ten million people who lost their jobs” with the coronavirus crisis and for “The millions more who could lose their homes”.

Unsurprisingly, the Fed has kept its key rates at the level set in the spring, between 0 and 0.25%. But it sent a new signal on its willingness to support the activity by indicating that it would continue its asset buybacks, ” at least “ at the current level of 120 billion dollars per month, and by now linking a possible change of course to the achievement of its two objectives: full employment and an inflation level of 2%. “These combined measures will allow monetary policy to continue to provide strong support to the economy until the recovery is complete”, ruled Jerome Powell after the meeting.

Room for maneuver

In doing so, the Fed keeps some leeway to act more if necessary: ​​by effectively increasing the volume of asset repurchases, or by buying securities with longer maturities. Some economists were counting from this meeting on an extension of the maturity of assets purchased, in order to ease the pressure on rates for households and companies and thus promote activity.

For Jerome Powell, sectors in crisis today (hotel and catering, tourism or air transport…) are not suffering from excessively high interest rates but more directly from the pandemic. Aware that there could still be “four, five, six months” difficult, he put more, in the short term, on the adoption in Congress of a new plan to help households and SMEs.

After months of aborted discussions, parliamentarians are on the verge of reaching a $ 900 billion deal to help households and businesses. Faced with the expiration of unemployment benefits and moratoriums on expulsions at the end of the year, parliamentarians seem ready to put aside their differences.

The wave of contamination is particularly violent in the United States: nearly twice as many people (110,000) are hospitalized than at the peaks of April and July, and the country is currently recording an average of 2,500 daily deaths. The milestone of 300,000 dead from Covid-19 was passed earlier this week.

New forecasts

This year, activity would ultimately fall “only” by 2.4% this year, before rebounding 4.2% next year, according to the median of the new forecasts published at the end of the Monetary Policy Committee of the Fed. In June, the central bank forecast a decline in GDP of 6.5% this year and a rebound of 5% next year, before revising its figures in September, anticipating a recession of 3.7% in 2020 then a recovery of 4% in 2021. Some economists, for their part, expect a contraction of around 3.5% this year.

At 6.7% in November, the unemployment rate would improve a little faster than expected too, to 5% next year, but it would not return to the pre-crisis level by 2023, indicate central bank forecasts. It was at the start of the year at a low for half a century, at 3.5% of the working population.

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