Fed holds rates near zero, plans no hikes until at least 2022

The Federal Reserve on Wednesday kept interest rates close to zero amid the economic damage of the coronavirus pandemic, and officials expect them to remain there until at least 2022.

The Federal Open Market Committee (FOMC), the Fed’s policymaking arm, announced Wednesday that it would maintain the baseline interest rate range of 0 to 0.25 percent set on March 15 as the coronavirus plunged the U.S. economy into lockdown.

The Fed will also continue to purchase billions of dollars worth of Treasury bonds and other securities to stimulate the economy and keep liquidity flowing throughout the crisis.

The Fed’s decision was widely expected given the deep economic damage of the pandemic and the long road to recovery ahead. While the U.S. gained a surprising 2.5 million jobs in May, nearly 300,000 Americans lost their jobs permanently as 2.7 million people came back from temporary layoffs.

The unemployment rate also remained at a staggering 13.3 percent, well above its peak of roughly 10 percent during the Great Recession.

“The ongoing public health crisis will weigh heavily 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 a statement.

“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Fed Chairman Jerome Powell has insisted throughout the crisis that there is “no limit” to the central bank’s willingness to flood the economy with cheap money and offer trillions in emergency loans to keep businesses and local governments afloat. 

All 17 members of the FOMC expected the Fed to keep rates steady until at least 2022, according to projections released Wednesday. One member expected the Fed to hike rates once in 2022, another member projected four hikes, and the remaining 15 members expected rates to remain unchanged through the year.

The FOMC projected the U.S. economy will shrink by a median of 6.5 percent of gross domestic product in 2020, recovering to a growth rate of 5 percent by 2021 and 3.5 percent by 2022. The median of FOMC members’ projections for the unemployment rate by the end of 2020 was 9.3 percent, falling to 6.5 percent in 2021 and 5.5 percent in 2022.

Powell has also warned that the Fed’s rescue efforts will not be enough on their own and would likely require additional fiscal stimulus from Congress to stave off a deeper economic downturn.

The Democratic-controlled House passed in May another $3 trillion fiscal stimulus and COVID-19 response bill, equaling the total cost of the previous coronavirus relief measures signed by President Trump since March.

While Senate Republicans declared that bill dead on arrival in the upper chamber, GOP leaders plan to pass their own measure sometime in late July or early August.

Trump administration officials have also expressed support for another stimulus bill to accelerate what they predict to be a swift recovery from the crisis. 

“We’re going to need money for business to encourage businesses to rehire in areas that have been most impacted,” Treasury Secretary Steven Mnuchin said during a Wednesday hearing, citing restaurants, hospitality and travel industries.