Federal Reserve digs in for prolonged recovery

The US Federal Reserve expects the labour market recovery from the Covid-19 pandemic to be a very drawn out process, requiring an equally prolonged period of low interest rates.

At his press conference following Wedneday's meeting of the Federal Open Market Committee, Fed chief, Jerome Powell, said "We're not even thinking about thinking about raising rates [...] We are strongly committed to using our tools to do whatever we can for as long as it takes."

Underscoring that point, the latest set of individual economic projections from the Fed's top policymakers showed that most now expected rates to remain low through 2022.

Separately, the Federal Reserve Bank of New York said that it would continue to raise its holdings of Treasuries and mortgage backed securities "at least at the current pace" of $80bn and $40bn, respectively, each month.

Powell also emphasised that the Fed was firmy focused on restoring full employment and stable inflation, apparently playing down the risk of stoking so-called 'asset bubbles'.

Indeed, the FOMC reiterated in its policy statement that the economy was still facing "considerable risks" in the medium-term.

"My assumption is that there will be a significant chunk, well, well into the millions of people who don’t get to go back to their old jobs and there may not be a job in that industry for them for some time," Powell said.

"It could be some years before we get back to those people finding jobs."

Nonetheless, the US unemployment rate was seen falling from 13.3% in May to 9.3% in the final three months of 2020 and then again to 6.5% in 2021.

Inflation on the other was seen keeping below the Fed's 2.0% target through 2022.

On that note, Powell disclosed that the FOMC had been briefed on so-called 'yield curve control' policies and that discussions would continue at upcoming meetings.

The central banker also said the Fed could only make loans to parties that it expected to pay them back, therefore grants backed by taxpayers might be more suitable in some cases.

Regarding fiscal stimulus, Powell appeared to be more circumspect in his endorsement of further spending than in the past, saying that lawmakers may "need to do more" but "that's going to be their decision".