Federal Reserve says economic recovery depends on Covid-19

US Fed opens policy meeting amid faltering confidence

The Fed renewed its low-rate vow a day ahead of a government report expected to show a record 34% drop in annualised economic output last quarter, when authorities imposed lockdowns that closed businesses and kept people home in a bid to slow the spread of the coronavirus. "This summer's resurgence in COVID-19 showed how vulnerable the economy is and how hard it is to make economic policy when we do not know what the virus will do next". High-frequency economic indicators are pointing to a stall in the USA economic rebound as consumers hold back from activities like dining out and air travel.

"The path of the economy will depend significantly on the course of the virus", Federal Open Market Committee said in a statement Wednesday released at the end of its two-day policy meeting.

"That, after a long rally, indicates a higher probability of a short-term correction".

The dollar extended its decline on the Fed announcement, while US stocks maintained their gains and gold remained buoyant. Globally, gold prices surged on Friday en route to its best month in more than four years as the dollar slid further after dismal USA data added to doubts about a swift recovery from the pandemic-induced economic slump, driving investors towards the safe-haven metal, according to Reuters.

According to Federal Reserve Chairman Jerome Powell, a full economic recovery remains unlikely until people are confident that it's safe to engage in broad economic activities. "I struggle to recall a time at which Powell, or any recent Fed chair, was as direct and candid about the urgency of fiscal stimulus to support the recovery and prevent a double-dip recession". The vote to leave the federal funds target rate in a range of 0% to 0.25% was unanimous.

The Fed said that over the coming months the Federal Reserve will increase its bond holdings "at least at the current pace".

The Federal Reserve has extended its emergency U.S. dollar swap lines by six months for both United States banks and some foreign central banks.

That aggressive action has helped to calm investors.

That's prompted governors from California to Florida to impose new economic restrictions.

In his news conference, Powell elaborated on just how much remained unclear about the direction of the world's largest economy.

Republicans are still divided over their own US$1 trillion (RM4.25 trillion) proposal and Democrats - whose plan is three times bigger - have resisted moves for a piecemeal package, which has been suggested by Donald Trump.



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