The U.S. Federal Reserve has decided to hold interest rates near zero and pledged to keep them there until the American economy recovers from the COVID-19 lockdown.
Fed Chairman Jerome Powell said the coronavirus has brought the U.S. economy to an "abrupt halt" and it was uncertain how long the slowdown would last.
"Economic activity will likely drop at an unprecedented rate in the second quarter," Powell told a video press conference. "It may well be the case that the economy will need more support from all of us, if the recovery is to be a robust one."
The Federal Open Market Committee said in a unanimous statement that it "will use its tools and act as appropriate to support the economy" and cautioned the COVID-19 pandemic would weigh on the economy over the medium term.
Policy makers last month slashed their benchmark rate and launched a massive bond-buying campaign to stabilize markets for Treasury and mortgage-backed securities that had become dangerously unsettled amid the pandemic. The federal funds rate has stood in a range of zero to 0.25% since mid-March. Economists surveyed by Bloomberg expect the U.S. central bank to keep rates near zero for three or more years.
Government data released earlier on Wednesday showed U.S. Gross Domestic Product (GDP) shrank at an annualized rate of 4.8% in the first quarter, the largest drop since 2008. Powell emphasized several times the importance of fiscal policy to help and said "this is not the time" to allow concerns about the size of the federal deficit to hinder the scale of the response.
