The Fed says it will keep the stimulus going for years

A face mask is seen in front of the New York Stock Exchange (NYSE) on May 26, 2020 at Wall Street in New York City. - Global stock markets climbed Monday, buoyed by the prospect of further easing of coronavirus lockdowns despite sharp increases in case rates in some countries such as Brazil. Over the weekend, US President Donald Trump imposed travel limits on Brazil, now the second worst affected country after the United States, reminding markets that while the coronavirus outlook is better, the crisis is far from over. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)

This means that it could take years until interest rates rise again. The Fed’s “point plot,” which reflects the predictions of central bank policymakers, shows no increase in rates this or 2021. Even in 2022, most policymakers believe that rates will remain at current rate rates.

“We’re not thinking about raising rates – we’re not even thinking about raising rates,” Fed President Jerome Powell told reporters at a news conference Wednesday.

The market seemed pleased with the central bank’s update, and stocks jumped sharply. Lower interest rates allow companies to borrow at lower rates, which is good for the stock market.

The Fed also said it would increase purchases of government securities and mortgage-backed securities to keep the market running smoothly.

“For now, it’s giving the market what it wanted and needed,” says Drew Matus, chief market strategist at MetLife Investment Management.

The Fed cut interest rates to almost zero in March at the start of the coronavirus pandemic. Since then, the central bank has set aside billions of dollars to support financial markets, companies, and state and local governments.

But the central bank, like the federal government, may have to do more to get the economy back on its feet, Powell reiterated at a news conference Wednesday.

Unemployment crisis

One of the Fed’s main goals is to foster economic conditions that achieve stable prices and maximum sustainable employment.

The central bank acknowledged the “enormous human and economic hardships” the coronavirus parody has inflicted on people around the world. By December, the Fed expects the unemployment rate to fall to 9.3% from 13.3% in May, but still well above the 3.5% rate in February – a nearly 50-year rate.

Millions of people won’t get their old jobs, “and maybe won’t find them for a while,” Powell said during a news conference.

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Even by the end of 2022, the unemployment rate is projected to be 5.5%, which is significantly higher than at the beginning of this year.

Powell reiterated that some demographic, especially women, black and Latin American workers, bear the burden of the unemployment crisis.

The Fed does not expect economic difficulties to stop any time soon: it has updated its economic projections for the year, predicting a 6.5% drop in gross domestic product, the broadest measure of the economy in 2020.

But Powell dismissed comparisons to the Great Depression, telling reporters he didn’t think it was “a good example or likely outcome for a model of what’s going on here at all, I really don’t know.”

Part the uniqueness of the pandemic recessionFor example, it is man-made in some way: the economy was artificially shut down to prevent the spread of the virus.

“The upcoming path for the economy is very uncertain and continues to depend heavily on the path of the pandemic,” Powell said.

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