The future of the U.S. economy depends on how well the coronavirus pandemic is controlled, the Federal Reserve’s rate-setting committee said on Wednesday. That’s not good news for a nation that leads the world in COVID-19 infections and deaths.
“The coronavirus outbreak is causing tremendous human and economic hardship,” the Fed statement said. “The path of the economy will depend significantly on the course of the virus.”
The statement came shortly after the U.S. broke the 150,000 threshold for deaths from COVID-19, as measured by Johns Hopkins University. The U.S. has about 4.2% of the world’s population and has recorded 23% of COVID-19 fatalities. The No. 2 nation for pandemic deaths is Brazil at 88,539, according to the Johns Hopkins data.
The way forward for a U.S. recovery is “extraordinarily uncertain,” Fed Chairman Jerome Powell said in a video-call press conference with reporters after the release of the statement.
Robert Kaplan, the president of the Federal Reserve Bank of Dallas, has asked Americans to wear masks and follow healthcare guidelines to try to check the spread of the virus. Powell, known as a deficit hawk in normal times, has urged Congress to spend more to curb the pandemic and help Americans who lost jobs.
The Fed is “not even thinking about raising rates,” Powell said during the press conference. “We’re stepping in to provide credit at a time when the market has stopped functioning.”
The Fed began buying Treasuries and mortgage-backed securities in mid-March to bolster demand for the fixed assets. Because MBS yields track Treasuries, both types of purchases are putting downward pressure on mortgage rates.
Helped by the Fed purchases, coupled with a pessimistic outlook among investors that is pushing them to seek the perceived haven of the bond markets, mortgage rates fell below 3% for the first time ever in mid-July. The average U.S. rate for a 30-year fixed mortgage fell to an all-time low of 2.98% as measured by Freddie Mac for the week ended July 17.
Last week, the average rate ticked up to 3.01% as lenders concerned about the jobs market added a “risk premium” to financing costs.
When the crisis began in mid-March, the Fed slashed its benchmark rate to near zero. Its statement on Wednesday repeated its pledge to keep that accommodative posture for as long as it takes to ensure economic growth.
“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,” the statement said.