Special Report

Shutdown: The Coronavirus

Feds will not raise its key interest rate until 2022 and project slow recovery

Jerry Powe, the Fed chair, said he expects interest rates to remain at zero through 2022. Photo by Simone Fontana via Flickr

The Federal Reserve left its interest rates unchanged at zero at its June policymaking meeting and maintained a cautious projection on the economy, signaling that it would keep the rates at zero at least through 2022.

 Jerome Powell, the Fed chair, said at a post-meeting news conference that he projected a slow economic recovery from the pandemic could start in the second half of 2020 and last years. 

 “We’re not even thinking about raising rates,” Powell said to reporters. “So what we’re thinking about is providing support for this economy. We do think this is going to take some time.”

The Trump administration has pushed for more extreme stimulus measures, from monetary to fiscal policies and predicted a rapid recovery from the coronavirus. He lashed out against Powell on Twitter in March, saying the Fed had “raised rates too fast and lowered too late,” and urged the Fed to “stimulate!” 

During a news briefing at the White House in April, Trump said investors “have a lot of confidence that we are doing the right thing and that our country is going to be open soon and our country is going to be booming.”

Yet, even after the Fed slashed interest rates and launched the unprecedented asset-buying program, the latest forecast still disappointed the president’s optimistic look. 

 The Fed has two explicit goals: to keep the long-term inflation rate stable and maximize employment. As the pandemic slashed Americans’ spending power, the inflation rate has remained well under the central bank’s 2% target. The Fed acknowledged that the “unemployment remains historically high,” despite the surprising May jobs report. 

 In May, the Bureau of Labor Statistics reported that the US economy added 2.5 million jobs, with the unemployment rate declining to 13.3% from April’s 14.7%. But the report included a note saying that there had been a “misclassification error,” and the overall unemployment rate could “have been about 3 percentage points higher than reported.” 

American workers haven’t experienced unemployment that high since the Great Depression.

 “The May employment report, of course, was a welcome surprise. Very pleased. We hope we get many more like it. But I think we have to be honest that it’s a long road,” Powell said in the press conference. 

 The Fed will continue to buy bonds as it continues one of its stimulus programs known as “quantitative easing.” That program increases the country’s money supply and further reduces interest rates, which in turn, can boost the economy by making it more attractive for households and businesses to borrow money. Since starting the program in March, the Fed has tapered it significantly, purchasing just $4 billion per day in Treasuries this week versus $75 billion at the peak in March.

Powell said, in the next few months, that the Fed will “gradually reduce the pace” since the ongoing purchases “have helped to restore orderly market conditions and fostered more accommodative financial conditions.” 

 After not giving an economic outlook during its March meeting, citing tremendous uncertainties ahead, the Fed gave its first forecasts for the economy since December. Fed officials expected the real GDP to contract 6.5% in 2020, with the unemployment rate at 9.3%. The US economy shrank by 4.8%, marking the first contraction since 2014. 

 This cautious tone is in line with analysts’ predictions. “There are potholes in the road ahead,” James Knightley, chief international economist of Ing, said in a statement. Knightley expected the economy to contract at around a 40% annualized rate in the second quarter of 2020.

 The Atlanta Fed’s latest model projected a 48.5% annualized drop in GDP in the second quarter, while the St. Louis Fed and New York Fed, which were more optimistic, estimated  25% and 35% declines respectively. A slowdown of that magnitude would mark the deepest quarterly drop in economic activity on record, since the government started tracking the data in 1947. 

 In response to a question about the Fed’s forecasts, Powell noted that the future is highly contingent on the pandemic. The World Health Organization on Monday warned that the pandemic is “far from over” after a record number of new daily cases in Central America and Latin America. 

 In the US, after the Memorial Day weekend and nationwide protests in support of black lives, at least nine states reported significant upticks in coronavirus hospitalizations, according to the data of John Hopkins University. If a second wave arrives in the fall, as the Centers of Disease Control and Prevention Chief Robert Redfield warned, states could be forced to shut down again. 

Powell said that the Fed would do “whatever we can, and for as long as it takes to provide some relief and stability” and to “limit lasting damage to the economy.” 



Other Stories in Special Report: Shutdown: The Coronavirus

NYC Restaurant owners worry about maintaining business during winter 

Isabel Beer September 27, 2020

The pandemic is causing mental health struggles for many Latinos

Paola Michelle Ortiz September 24, 2020

Politically divided family can agree on one thing, rallies are bad during a pandemic

Michelle Diaz September 23, 2020

New Yorkers are vulnerable to mental issues due to pandemic

Sughnen Yongo-Okochi September 23, 2020

Healthcare professionals struggle with Trump’s decisions during pandemic

Tori Luecking September 23, 2020

Some Americans Say “Not So Fast” on Operation Warp Speed

James Pothen September 23, 2020

Trump voters unfazed by morality of Trump’s Covid response

Norah Hogan September 22, 2020

Trump rallies continue, despite the rising Covid-19 death toll

Isabel Beer September 22, 2020

Latinos weigh in on President Trump’s management of the pandemic

Paola Michelle Ortiz September 21, 2020

Fast track vaccine causes fear

Kaity Assaf September 21, 2020

It’s business as usual at McSorley’s Old Ale House

Tori Luecking September 20, 2020

Trump defiance to hold indoor rallies amidst COVID-19 sparks polarized responses 

Courtney Guarino September 20, 2020

NYC Cafes and restaurants try and survive the pandemic

Isabel Beer September 19, 2020

A typical afternoon at Shade Bar NYC

Kaity Assaf September 19, 2020

West Village staple, Caffe Reggio, remains open for outdoor dining in the wake of coronavirus restrictions 

Norah Hogan September 19, 2020

Fort Greene’s Dino adds outdoor dining to keep business flowing

Courtney Guarino September 19, 2020

COVID-19 hampers Fashion Week for photographers

Daniel Karel September 18, 2020

On the heels of revelation that Trump downplayed the covid threat, voters question rallies resuming

Sughnen Yongo-Okochi September 16, 2020

Overburdened mothers in Pakistan are relieved as schools reopens

Quratulain Tejani September 13, 2020

Students from different parts of the world struggle as schools reopen during a pandemic

Chuyan Jiang September 12, 2020

Special needs students face learning obstacles during Covid-19

Courtney Guarino September 12, 2020

Back to school – COVID-19 style 

Isabel Beer September 12, 2020

The new normal for school life is abnormal in Michigan

Sughnen Yongo-Okochi September 11, 2020

California School District Parents and Teachers Clash About Return to School

Norah Hogan September 10, 2020

A tribute to the mask pioneers

Bohao Liu July 11, 2020

Air pollution in China rebounds to pre-COVID level

Hannah Zhang July 11, 2020

ICE takes aim at international students

Maria Abreu July 10, 2020

Chinese students trapped by new ICE policy

Zishu Sherry Qin July 10, 2020

New ICE policy adds more turmoil to the lives of international students

Shiyu Xu July 10, 2020

Lawsuits follow ICE policy barring international students who are taking online classes

Joanna Lin Su July 10, 2020

Economists say the US needs a bold, generous fiscal response. Congress is likely to disappoint. 

Ahmed Mohamed July 9, 2020

Overseas Singaporeans have pandemic obstacles to voting

Yifan Yu July 9, 2020

Proximity sensors and hygiene stations are the “new normal”

Joanna Lin Su July 9, 2020

 Tour ticket vendors miss the hustle and bustle of Times Square

Narkwor Kwabla July 8, 2020

Dengue outbreak could be a greater threat than covid in Singapore

Yifan Yu July 8, 2020

Corporate bankruptcy: ‘A story that’s not going away’

Gaurav Sharma July 7, 2020

Beijing reopens as the second wave of coronavirus dies down

Hannah Zhang July 6, 2020

Masks or no masks?

Bohao Liu July 5, 2020

Varsity Flu

Madeline Gunderson July 3, 2020

Rail travel in China is popular during the pandemic and filled with safety measures

Bohao Liu July 3, 2020

Brazilian international student caught in US travel ban.

Marina Guimaraes July 3, 2020

MTA faces crisis following COVID shutdown

Daniel Girma July 2, 2020

Easter Market goes back to its roots

Kyla Milberger July 2, 2020

China’s Airline Industry Aims to Lure Back Passengers with Unlimited Flight Pass

Zishu Sherry Qin July 1, 2020

US corporate debt soars during coronavirus outbreak

Gaurav Sharma June 30, 2020

In Singapore, gay pride goes online

Yifan Yu June 29, 2020

The Hair Room reopens

Shiyu Xu June 29, 2020

A second wave of the coronavirus creates travel woes in Beijing

Hannah Zhang June 29, 2020

Despite a few bumps, NYC is social distancing more than not

Joanna Lin Su June 29, 2020

Backyard music lessons

Madeline Gunderson June 28, 2020