In his latest address, U.S. Federal Reserve Chairman Jerome Powell stressed that the American economy needs more fiscal and monetary policy support and warned that mounting Covid-19 infections pose a risk.
"I think we’ll have a stronger recovery if we can just get at least some more fiscal support," Powell told reporters after the Fed announced that it is keeping interest rates near zero and made no change to its pace of asset purchases. "The recent rise in new COVID-19 cases, both here in the United States and abroad, is particularly concerning."
The Fed is keeping the federal funds target rate in a range of 0% to 0.25%, where it’s been since March, and maintained bond purchases at $120 billion U.S. a month. Powell spoke about the outlook for the economy as the results of the U.S. Presidential election remain uncertain.
"Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year," the Federal Open Market Committee said in a statement following its two-day meeting, largely repeating language on the economy they’ve employed since July.
"The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the FOMC said in language identical to the prior statement in September.
Ten-year Treasury yields were little changed after the statement was released, hovering at about 0.77%. The yield curve, as measured by the gap between five- and 30-year yields, also held steady at about 121 basis points.
While vote counting continues in closely contested U.S. states, the two major political parties could split control of Washington. Democrat Joe Biden is on the brink of capturing the White House from Donald Trump, and his party will retain the House of Representatives. But control of the Senate may hinge on runoff elections in Georgia.
A split outcome would reduce the chances for a big fiscal stimulus package from Congress in the New Year, even as the Covid-19 pandemic continues to threaten the economy. That may put more pressure on the Fed to ramp up its bond buying, or at least change the composition of its purchases, in an attempt to lower borrowing costs and further boost the recovery.
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