U.S. Federal Reserve Chairman Jerome Powell is expected to reinforce that the Federal Reserve will continue using all its tools to bolster the American economy during the central bank’s latest policy meeting and a virtual news conference on Wednesday.
Observers of the U.S. central bank expect Powell to drive home the message that the American economy remains in need of extraordinary help despite glimmers of a possible recovery, including a government report Friday that employers added jobs in May.
Should Powell fail to reassure investors that the Fed will keep borrowing costs ultra-low, longer-term interest rates could rise and further diminish an economy that has been depressed by business shutdowns forced by the coronavirus pandemic. If Powell succeeds, though, investors will likely draw confidence from the belief that the Fed will keep using all its tools and preserve the array of emergency lending programs it has already unveiled.
Since March, the Federal Reserve has slashed its benchmark short-term interest rate, bought $2.2 trillion U.S. in Treasury and mortgage bonds to inject cash into markets and rolled out nine lending programs to try to keep credit flowing. Most analysts expect the Federal Reserve to pause and assess the economic landscape before embarking on any further actions, including on interest rates.
Although the Federal Reserve could technically cut rates into negative territory, Powell has previously rejected negative rates as an option, saying they wouldn’t have much benefit for the U.S. economy. At a meeting last fall, all 17 members of the Fed’s policy committee voted against negative interest rates.