Having already lowered the benchmark lending rate to zero, the US Federal Reserve is expected to do little more than offer reassurance when its meeting ends (Olivier DOULIERY)

Washington (AFP) – The Federal Reserve resumed its policy deliberations Wednesday following the shock announcement that the US economy collapsed in the first quarter, an early sign of the damage wrought by the coronavirus.

The 4.8 percent contraction in GDP in the first three months of the year was all the more worrying since the most strict business shutdowns and stay-at-home orders did not occur until the final weeks of March.

“The Global Coronavirus Recession has hit the US economy with tremendous force,” said Gregory Daco of Oxford Economics. “Following 10 years of continuous growth, the longest US economic expansion has ended.”

The central bank had moved quickly to get ahead of the bad news, with the policy-setting Federal Open Market Committee (FOMC) slashing the benchmark lending rate to zero by mid-March following two emergency meetings.

There is little left for the FOMC to do except offer reassurance in its policy statement at 1800 GMT.

But with over 26 million jobs purged as businesses were forced to shut down to contain the outbreak, Fed Chairman Jerome Powell is likely to stress the central bank’s commitment to continuing to pump cash into the economy in his press conference following the meeting.

After cutting interest rates, the central bank worked at a blistering pace to roll out one program after another to offer financial backstops to banks, corporations, small businesses and state and local governments.

It has also pledged to buy unlimited amounts of US Treasury debt — essentially allowing the government to print money to finance a series of rescue programs that are approaching $3 trillion.

In the latest move this week, the Fed expanded lending to smaller cities and counties.

That support will be needed since the second quarter is expected to be much worse, even amid tentative signs businesses may begin to reopen.

“Grim, but much grimmer is coming,” Ian Shepherdson of Pantheon Macroeconomics said of the first quarter GDP data.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.