Federal Open Market Committee members expressed concern at their latest meeting over the future of the economy, saying that the coronavirus likely would continue to stunt growth and potentially pose dangers to the financial system, CNBC reported.
At the July 28-29 session, the Federal Reserve’s policymaking arm voted to keep short-term interest rates anchored near zero, citing an economy that was falling short of its pre-pandemic levels.
Officials at the meeting “agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term,” the meeting summary said.
As Chairman Jerome Powell and Fed leaders have emphasized multiple times, the minutes noted a consensus on the need for more fiscal help from Congress, which went into recess without a deal for more rescue funding even as critical elements such as enhanced unemployment insurance remain expired.
The minutes “underscored the need for a fiscal package,” said Quincy Krosby, chief market strategist at Prudential Financial. “Chairman Powell has been adamant that we need to see another package, especially because they see the negative effects of the slowdown.”
Comments further indicated that while members are in favor of adding clarity to their expectations for when they will hike rates again, they appeared to reject the likelihood of using bond purchases to control yields on government bonds.
Stocks gave up some gains after the minutes release while yields edged lower and the U.S. dollar rose.
Because of how much impact the virus will have on the economy, FOMC members said they expect to hold the current overnight borrowing rate to a range of 0%-0.25% until they’re “confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals.”
U.S. gross domestic product tumbled at a rate of 32.9% in the second quarter as the pandemic shut down most nonessential activities. A return to growth is expected in the third quarter, though a resurgence in the virus is casting some doubt on how aggressive the bounceback might be.
Along with concerns about general growth, members said they worried about risks to the financial system.
Though Powell and other Fed officials repeatedly have said banks and related institutions are in generally strong shape, committee members at the meeting said they worried whether that might change if the virus spread persists and “more adverse” scenarios about the future take hold.
Officials also expressed worry about burgeoning levels of public debt.
The federal government is now $26.6 trillion in debt, gaining more than $3 trillion during the pandemic as Congress and the White House rushed to get aid to those impacted by the economic shutdown. That has coincided with a rush to market of Treasurys and is raising concerns that the high level of issuance “could have implications for market functioning.”
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