However, the Fed reiterated its readiness to act and stressed that the krone pandemic continued to pose a considerable risk despite the recent economic recovery in the United States. The economy is still noticeably weaker than at the start of the year. “The ongoing health crisis will continue to weigh on economic activity, employment and inflation,” the central bank statement said.
In a press conference, Fed Chairman Jerome Powell said the recovery in the economy and the labor market has recently weakened. Powell again asked for financial assistance to address the crisis. The Fed can only influence the loan, but not replace lost income. Financial policy is required here. The parties in Washington have not been able to agree on a new Corona stimulus package for a long time.
In view of the election thriller and the still divided Congress, the chances of an early deal are currently slim. However, many branches of the economy are in dire need of support after a first major aid program has ended. If another lockdown occurs, the pressure on the Fed to act could increase rapidly to provide assistance with further easing of monetary policy.
As early as mid-September, currency supervisors had signaled that key interest rates were to remain close to zero for years. This has now been confirmed once again. After the crown pandemic spread to the United States in March, central bankers lowered interest rates in two big steps to their current level. Additionally, the Fed is pumping additional liquidity into the country through multi-billion dollar bond buying programs Financial marketsto push the economy with the deluge of money.
The Fed also reaffirmed its new line of temporarily allowing inflation rates above its two percent price target. The central bank introduced this new strategy just a few months ago. The background for this is the unusually low inflation rate for a long time, even in better economic times. The Fed has a mandate to fight for both “maximum employment” in the labor market and economically sound inflation.
How much the krona crisis continues to weigh on the US economy was also evident on Thursday in new data from the Department of Labor. According to this, 21.5 million people have recently received some form of unemployment benefit. Last week, 751,000 were added – although much ground has been made up in the labor market since the unprecedented collapse at the start of the crisis, this is still a dramatically high figure by historical comparison.
That the Fed keeps silent in the current political environment is far from surprising. The American elections has not yet been decided, there are legal disputes between the president Donald Trump and his challenger Joe Biden. In any case, the central bank is held mostly in times of political elections. Powell described the recent rise in corona infections in the United States as worrying. A full economic recovery is only possible when people feel safe ./hbr/bgf/DP/jsl
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