Fed ponders what else it can do to buoy economy

US Federal Reserve Chair Jerome Powell has pledged the central bank will use all its tools to support the economic recovery. ©AFP/File Eric BARADAT

Despite glimmers of hope that the US economy has hit bottom, the Federal Reserve will be looking for more ways to support the recovery as its two-day policy meeting concludes Wednesday.

The central bank already cut rates to zero in March and has been pumping trillions of dollars into the economy — essentially printing money. 

This week, it again expanded its planned Main Street lending program for small and medium businesses, but on the final day of its two-day meeting, Fed Chair Jerome Powell is expected to make clear there is more policymakers can and will do.

Some of the central bank’s actions will be more of interest to financial market players, such as adjusting the pace of the Fed’s purchases of securities like Treasury bonds and mortgage-backed securities.

But Powell, who has pledged the Fed will use all of its tools to boost the economy, also could be more explicit about ensuring interest rates remain at zero until clear targets for inflation and employment have been met, though he may wait until later to announce those.

“Everything we do is focused on creating an environment in which… people will have their best chance to keep their job or get a new job,” Powell said recently.

The Fed meets after last week’s surprising jobs report showed unemployment declining to 13.3 percent in May with 2.5 million jobs created, as business and consumer confidence has shown tentative signs of improvement.

The policy-setting Federal Open Market Committee (FOMC) is due to release its statement and economic forecasts at 2:00 pm (1800 GMT).

“The Fed will welcome the improvement in employment we saw in May, but those gains will not be enough to stop members of the FOMC from worrying about the pace of the rebound in growth,” Diane Swonk of Grant Thornton said in an analysis.

“The Fed has been consistent in its view that more fiscal stimulus will be needed. It is not expected to back down now,” she added, referring to the central bank’s concern that Congress will hold off on more aid programs due to the improving jobs numbers.

Like Swonk, IHS Markit economist Ken Matheny thinks the Fed’s economic targets may not be announced immediately.

“We expect the FOMC to announce, eventually, threshold-based forward guidance that would establish economic benchmarks to be attained before the target for the federal funds rate would be raised above its effective lower bound,” he said in an analysis. 

“Those benchmarks are likely to include references to reaching approximately full employment and achieving two percent inflation on a sustained basis.”

Economists agree the Fed is unlikely to take interest rates into negative territory, as Powell has said that policy has not been clearly effective in countries where it has been tried.

(AFP)