Federal Reserve Chairman Jerome Powell said Wednesday that he anticipates the central bank will target short-term interest rates near zero until the dangers posed by the pandemic have passed.
“We are not changing that guidance today. That means we’re going to be very patient. That means we’re not going to be in any hurry to move rates up,” he said.
The central bank last cut its interest rate target on March 15 to between 0% and 0.25% in an emergency response to the pandemic. Powell said these rates would not change until the nation has been able to contain the spread of the coronavirus.
“We said that we’ll keep our rates where they are until we’re confident that the economy has weathered the effects of the outbreak and is on track to achieve our goals,” he said.
He did not specify the goals that needed to be achieved to raise interest rates other than containing the spread of the virus.
When asked if these goals could be met after the second quarter, Powell said there were too many unknowns to give a definite answer.
“Economic forecasts are always uncertain. Today, they’re unusually uncertain, and that’s because so much of the performance of the economy depends on the path of the virus and the success of the measures we take to control it, our success in reopening the economy, and also the time it takes to develop new drugs,” he said.
Despite the uncertainty, he said he was sure on a few developments that will arise because of the pandemic: a sharp contraction in economic activity, high unemployment, and a sharp decline in personal consumption.
“We’re going to see economic data from the second quarter that is going to be worse than any data that we have seen for the economy, and they are a direct consequence of the disease and the measures we are taking to protect ourselves,” he said.
Powell also said that, while he has advocated for fiscal consolidation in the past to lower the trajectory of federal debt, that topic needs to be tabled for now.
“This is not the time to act on those concerns. This is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer-run productive capacity of the economy as possible,” he said.
Powell also mentioned that Congress might have to do more to help shore up the economy, such as another round of the CARES Act, which protected businesses and households from insolvency.
“Those are going to be key policies that come with a hefty price tag, but we would come out of this event, eventually, with a stronger economy, with less long-run damage to the economy,” he said.
