Economy

Federal Reserve says economic recovery depends on Covid-19

Federal Reserve says economic recovery depends on Covid-19”

Russ Mould, investment director at AJ Bell, said there was "disappointment" among investors at the Fed's warning recovery depended on the course of the virus.

"The path forward for the economy is extraordinarily uncertain, and will depend in large part on our success in keeping the virus in check", Powell told reporters in a virtual press conference after the central bank left interest rates unchanged near zero.

Consumer confidence has taken a hit.

Powell's vow to keep interest rates near zero for as long as it takes and use all the central bank's "tools" lifted USA stocks on Wednesday, but failed to lift European stocks on the open.

The statement came as the policy-setting Federal Open Market Committee (FOMC) held the benchmark lending rate at zero as expected, and did not make any other changes to its guidance.

After sharp declines earlier this year, economic activity and employment "have picked up somewhat in recent months but remain well below their levels at the beginning of the year", the Fed said.

The dollar briefly extended its decline following the decision, while US stocks maintained their gains and gold remained buoyant.

Spot gold dipped 1.2% to $1,947.28 per ounce by 11:54 a.m. EDT (1554 GMT), while USA gold futures slid 0.7% to $1,940.2.

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"It's a bit ominous, to be frank. That sentence shows the primacy of COVID-19 in their outlook and the uncertainty of their outlook because of it", Richardson said.

Observers said focus now turns to the next policy meeting in September, which could see more measures unveiled. The FOMC also reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities "at least at the current pace" over coming months.

A government report due out later in the day is expected to show a record 34% drop in annualised economic output last quarter.

Fed policymakers had hoped those measures would help contain the virus, allowing the economy to bounce back quickly, even as they fretted over the possibility that infections could resurge and blunt the economic recovery.

But, while traders have a mountain of cash from governments and central banks around the world backing them up, the disease continues to dominate as the USA death toll topped 150,000 and Australia's state of Victoria noted a record number of new infections. But progress toward recovery has been complicated in recent weeks by a new wave of coronavirus outbreaks across major states in the South and West including Texas, Florida, California and Arizona.

Job growth, which had been unexpectedly strong in May and June, now appears to be slowing.

Government aid that kept millions of unemployed Americans spending will drop sharply at the end of this week unless Congress agrees on a new relief package, with Republicans and Democrats so far not able to bridge their differences.



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