Friday, 07 August, 2020

Federal Reserve warns United States recovery is stalling

FXStreet FXStreet
Ginger Lawrence | 02 August, 2020, 14:54

Calling the COVID-19 economic downturn the most severe "in our lifetime", Federal Reserve Chairman Jerome Powell stressed that there is a long road ahead to get back to where the USA economy was only months ago and noted that more fallout from the virus lies ahead.

"But they can't tame the virus or manufacture demand, and that's what the economy desperately needs in order to bounce back", he said. Coronavirus infections have exploded in several Southern and Southwestern states in recent weeks, and some states have paused or rolled back reopening measures.

The Fed appeared to go out of its way to acknowledge the human costs of the pandemic in its policy statement.

Deaths from Covid-19, the respiratory illness caused by the virus, are also on the rise.

Equities mostly fell Thursday as fears a fresh wave of virus infections could push the global recovery off track erased early gains fueled by a Federal Reserve pledge to provide as much support as necessary to the U.S. economy.

There is also a worry Powell's calls for more government aid to help the economy might not be heeded by lawmakers in Washington, who remain poles apart as they try to hammer out a new stimulus.

Consumer confidence has taken a hit. But on balance it looks like the data "are pointing to a slowing in the pace of the recovery", he said, though it was too soon to say how large - or sustained - this pause would last.

The Fed held policy largely steady at its two-day policy meeting this week, with key decisions likely to come this fall after it is clearer where the health crisis is heading and how forcefully Congress does or does not add to the support available for struggling businesses and unemployed workers.

Fed policymakers repeated a pledge to use their "full range of tools" to support the economy and keep interest rates near zero for as long as it takes to recover from the epidemic.

COVID-19: Health officials announce 50 new cases, one new death
There are now two long-term care facilities and one acute-care facility with active outbreaks. A total of 3,168 people who have tested positive for the virus are now considered recovered.

"You've a lot of people trading gold short-term now, so we are going to get some pullback just on what I would consider simple profit-taking since it's had such an incredible run year-to-date", Mr Sica said. "We are in this until we are well through it".

The dollar extended its decline on the Fed announcement, while US stocks maintained their gains and gold remained buoyant. The dollar fell to a two-year low against a basket of currencies.

"The most notable thing is the statement that the path of the economy will depend on COVID-19".

"It's a bit ominous, to be frank".

"It wasn't exactly the most riveting (policy meeting) of recent times after the Fed let the cat out of the bag late Tuesday pledging to extend its emergency programmes", said Stephen Innes at AxiCorp.

London dropped 0.8 percent in the morning and Paris 0.5 percent, while Frankfurt sank more than one percent after data showed Germany's economy shrank a record 10.1 percent in the second quarter.

Since their last policy meeting in June, the epidemic has intensified, with an average of around 65,000 new cases detected each day, about three times the pace of new infections in mid-June.

Recent labor market indicators point to a slowing in job growth, particularly among smaller businesses.