Federal Reserve warns U.S. recovery is stalling

Washington DC. Federal Reserve Chairman Powell and Treasury Secretary Steven Mnuchin testified on their agencies’ respons

Fed Chairman Powell speaks out on state of US economy

Russ Mould, investment director at AJ Bell, said there was "disappointment" among investors at the Fed's warning recovery depended on the course of the virus.

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 USA economy.

All FOMC members voted to leave the target range for short-term interest rates at between 0% and 0.25%, where it has been since March 15 when the virus was beginning to hit the nation. He added; "there's probably going to be a long tail where a large number of people are struggling to get back to work".

If official economic data backs up early indications of a decline in growth, the Fed could ease policy further, Powell signalled, including by potentially promising no changes to interest rates until unemployment and inflation rates meet explicit benchmarks.

"The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals", the statement said.

The dollar's decline came as investors started to doubt the conventional wisdom that USA economic growth and investment returns from the US currency would be higher than many other countries.

The prospect of U.S. interest rates being kept at zero for an extended amount of time put further pressure on the dollar, which hit a two-year low against the euro, though it managed to claw back slightly in Asian business.

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

Observers said focus now turns to the next policy meeting in September, which could see more measures unveiled.

Fed plans to increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to support the flow of credit to households and businesses, over coming months and sustain smooth market functioning.

"Since the Fed last met, the U.S. economy has been treading water and there has been a resurgence in the virus".

But, while traders have a mountain of cash from governments and central banks around the world backing them up, the disease continues to dominate as the U.S. reached 150,000 deaths and Australia's state of Victoria recorded a record number of new infections. But progress toward recovery has been complicated in recent weeks by a new wave of coronavirus outbreaks across major states in the South and West including Texas, Florida, California and Arizona.

Meanwhile, government aid that kept millions of unemployed Americans spending will drop sharply at the end of this week unless Congress agrees on a new relief package.

Republicans are split over whether to support $1 tn in new spending, and Democrats want a figure closer to the $3tn Congress has already committed to fight the crisis.

Small businesses, a mainstay of the USA economy, are increasingly facing a breaking point as government grants run dry and payments come due.

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