DThe emergency programs of the American central bank are intended to stabilize the American economy, but ultimately the containment of the coronavirus pandemic will be decisive. That was the clear warning from the central bank on Wednesday Federal Reserve (Fed) looking ahead to the world’s largest economy. The Fed was determined to use its “full range of tools” to cushion the economic consequences of the corona crisis, the central bank said.
The Fed emphasized that growth and employment had increased somewhat since the pandemic in America, but was still significantly below the level at the beginning of the year. “The course of the economy will depend to a very large extent on the course of the virus,” said the head of the central bank Jerome Powell. The pandemic will continue to “weigh heavily on the economy,” the central bank warned. The key interest rate will remain in the range of 0 to 0.25 percent due to the crisis, it was said.
Powell warned that a complete economic recovery would be “unlikely” without curbing the virus. The current economic crisis is the worst in decades, he said. The Fed will therefore continue its emergency programs for the duration of the crisis to ensure that the economy will recover “as soon as possible”, Powell said. More fiscal support may also be needed, Powell said – clearly in reference to ongoing negotiations in Congress for another stimulus package.
Financial support to pay the rent
Looking at the increased unemployment benefit expiring at the end of the month, Powell said many people in the country still need support. The amount is up to Congress, but it is clear that given the continuing high unemployment rate, many people need help to pay their rent and other bills. Republicans from President Donald Trumps and the Democrats are currently negotiating an extension of the unemployment benefit and another stimulus package. With regard to the pandemic, Powell emphasized that the economic outlook remains “extraordinarily uncertain”.
Because of the corona crisis, the Fed has been launching emergency programs to buy bonds and lend since the end of February in order to stabilize the financial markets and the real economy. The Fed had only announced on Tuesday that several of the loan programs would be extended until the end of the year given the ongoing pandemic. On Wednesday, it was also said that the billion dollar lines of credit for foreign central banks would also be extended until the end of March next year. According to experts, the Fed’s crisis measures are already more extensive than those after the global financial crisis of 2008/2009.
The escalation of the pandemic in March and April had plunged America into a severe economic crisis with record unemployment. In May and June there were signs of recovery in the world’s largest economy. Since the end of June, however, the number of new infections has increased dramatically, which has led to new restrictions on economic life. States in the south and west of the country are particularly affected, but around a third of the population lives in them.
Economic slump expected up to 40 percent
Around 60,000 new infections are currently reported in America every day. According to data from the University of Johns Hopkins, there are now almost 4.4 million confirmed infections with the pathogen Sars-CoV-2. On Wednesday evening, the country hit 150,000 deaths related to the virus.
The unemployment rate was 11.1 percent in June. Before the pandemic, it was a low 3.5 percent. The economy already contracted slightly in the first quarter, and current data for the second quarter are expected this Thursday. Extrapolated for the year, analysts expect a slump of around 30 to 40 percent. According to the quarterly comparison of reports used in Europe, this would correspond to a minus of between 9 and 12 percent. Powell warned that economic data in the second quarter could be a historic negative record.
Since the beginning of the crisis, parliament and the government have already adopted stimulus packages amounting to almost three trillion dollars, which corresponds to more than ten percent of the annual economic output.