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transcript
Federal Reserve Will Keep Interest Rate Near Zero
In an attempt to revive the economy and the labor market, the Federal Reserve chair, Jerome H. Powell, said the Fed plans to keep interest rates near zero through at least 2023.
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Before describing today’s policy actions, let me briefly review recent economic developments. Economic activity has picked up from its depressed second-quarter level, when much of the economy was shut down to stem the spread of the virus. With the reopening of many businesses and factories, and fewer people withdrawing from social interactions, household spending looks to have recovered about three-quarters of its earlier decline. The recovery has progressed more quickly than generally expected, and forecasts from F.O.M.C. participants for economic growth this year have been revised up since our June summary of economic projections. Even so, overall activity remains well below its level before the pandemic, and the path ahead remains highly uncertain. With regard to interest rates, we now indicate that we expect it will be appropriate to maintain the current zero to one-quarter percent target range for the federal funds rate until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment, and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
Federal Reserve officials expect to leave interest rates near zero for years — through at least 2023 — and will tolerate periods of higher inflation as they try to revive the labor market and economy, based on their September policy statement and economic projections released Wednesday.
The announcement codifies that the Fed chair, Jerome H. Powell, and his colleagues plan to be extraordinarily patient as they try to cushion the economy in the months and years ahead.
The policy-setting Federal Open Market Committee “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time,” officials said in their statement.
“Effectively, we’re saying rates will remain highly accommodative until the economy is far along in its recovery,” Mr. Powell said at a news conference following the meeting.
Fed officials are also mulling when and how to update their asset purchase program — which involves buying large quantities of Treasury securities and government-backed bonds — and said Wednesday that they would maintain purchases “at least” at their current pace to “sustain smooth market functioning and help foster accommodative financial conditions.”
Mr. Powell noted that the economy had picked up, but the recovery in household spending probably reflected “substantial and timely” fiscal support, and said services that involved people gathering together — like entertainment and tourism — remained depressed.
“Overall activity remains well below its level before the pandemic, and the path ahead remains highly uncertain,” Mr. Powell said.
The Fed updated its Summary of Economic Projections, a set of estimates for how the economy and interest rates will develop in coming years. Officials saw unemployment ending 2020 at a lower rate than it previously forecast: The median official expects the rate to average 7.6 percent over the final three months of the year, compared with 9.3 percent when the Fed released its last set of projections in June.
Two officials, Robert S. Kaplan from the Federal Reserve Bank of Dallas and Neel Kashkari from the Minneapolis Fed, voted against Wednesday’s decision. Mr. Kaplan favored retaining greater flexibility about future rate setting, while Mr. Kashkari wanted the committee “to indicate that it expects to maintain the current target range until core inflation has reached 2 percent on a sustained basis.”
The pilots union at United Airlines has reached an agreement to avoid furloughs until next summer, sparing the jobs of thousands of pilots weeks before broad job cuts are slated to begin across the industry.
The union, the United Master Executive Council, said the agreement, which has yet to be approved by its 13,000 members, would protect pilots from furloughs until June. It would also open a second round of early retirement offers and includes temporary work reductions that would be reversed automatically as the airline recovers. Voting begins on Monday and closes on Sept. 28, just days before tens of thousands of industry furloughs are expected to begin.
Airline employees had been protected from broad cuts under the terms of the March stimulus law, the CARES Act, which gave passenger airlines $25 billion to pay workers as long as they avoid substantial cuts through the end of this month. A union effort to renew that funding had gained bipartisan support, but broader stimulus talks have stalled. Without further aid, many airlines say they will have to furlough broad swaths of their work forces.
United has said it plans to furlough 16,000 workers, warning 2,850 pilots that they would be affected. Another 1,050 were expected to received such warnings soon, the union said. American Airlines expects to furlough 19,000. On Tuesday, Delta Air Lines said it would avoid furloughs for most of its work force, though it still plans to furlough nearly 2,000 pilots. Southwest Airlines has also said it will be able to avoid such cuts.
The economic fallout from the coronavirus pandemic has been particularly devastating for Black, Latino and Native American people, according to a survey released Wednesday, forcing a broad range of households to deplete their savings and delay necessary medical care, while hampering their ability to afford food and care for their children.
“The findings are not what we expected,” said Robert Blendon, a professor at the T.H. Chan School of Public Health at Harvard University, which conducted the survey in New York, Houston, Los Angeles and Chicago in conjunction with the Robert Wood Johnson Foundation and National Public Radio. “They’re actually much worse.”
Despite billions of dollars in government assistance as well as help from private and nonprofit charities, “we have not put a cushion to get through this natural disaster in health for these minority communities,” Dr. Blendon said.
Among Latinos, for example, six in 10 households have a member who has lost a job or had their wages and hours cut. Among Black and Native American households, that figure is four in 10. As for access to internet connections needed for school or work, roughly half of Native American households and 40 percent of Black and Latino households reported serious problems.
These communities have also had the highest rates of infection and death from Covid-19, Dr. Blendon noted.
The findings come as the stalemate in Congress on another emergency relief bill continues.
The current inequities are rooted in longstanding inequalities in income and employment combined with gaps in access to quality schools, child care and health care, the authors said, and the pandemic will amplify these hardships in the future.
“The national response to this pandemic has failed too many families,” said Avenel Joseph, vice president for policy at the Robert Wood Johnson Foundation.
“We all want to believe we’re all in this together,” she added, “but in reality, long-existing structural inequities” are showing the disproportionate impact the coronavirus pandemic is having.
Despite an end to the federal stimulus measures that have propped up consumer spending, retail sales climbed for the fourth straight month in August, extending a bounce back that has lasted longer than many economists had expected.
Retail sales rose 0.6 percent last month, the Commerce Department reported on Wednesday, as Americans continued to spend on home computers, new cars and online groceries. Retailers serving those pandemic-related needs reported record sales.
The gains, however, were smaller than in previous months, which some economists warned could be a sign that the retail recovery has finally run out of steam. The 1.2 percent increase in July was revised down to an 0.9 percent gain.
The rise in consumer spending in August occurred against a grim economic backdrop that grew even darker as the $600-a-week supplemental unemployment assistance expired and Congress failed to agree on new stimulus measures. Unemployment declined, but stayed high as huge sectors of the economy — like hospitality, food service and travel — remain largely shut down.
In the face of such broad economic turmoil, the level of spending has surprised some experts, even when factoring in Americans’ seemingly unwavering propensity to shop.
A few factors likely converged, including stock market gains that increased purchases among wealthy spenders and money that people in the lower-income bracket had been saving from their $600 weekly assistance, which ended July 31.
The recovery continued to be strong for some retailers, while others have struggled.
Most apparel chains and department stores have seen sales tumble during the pandemic. In the past six weeks, Lord & Taylor and Century 21, a staple of bargain apparel shopping in New York, joined the growing list of retailers that have filed for bankruptcy in recent months. Both plan to liquidate.
Yet, national chains like Best Buy, Dick’s Sporting Goods and West Elm have reported revenue jumps this summer, with many Americans spending more on goods that they could use at home or while socially distancing outdoors. Dick’s reported a record quarter last month, fueled by outdoor activities like golf, camping and running.
“I would have expected more weakness,” said Scott Anderson, an economist at the Bank of the West. “I think there is a bit of deer-in-the-headlights phenomenon. People are having trouble wrapping their minds around the extent of the economic losses.”
The recovery in consumer spending continued to be strong for some retailers in August, while others have struggled.
Most apparel chains and department stores have seen sales tumble during the pandemic. In the past six weeks, Lord & Taylor and Century 21, a staple of bargain apparel shopping in New York, joined the growing list of retailers that have filed for bankruptcy in recent months. Both plan to liquidate.
Yet, national chains like Best Buy, Dick’s Sporting Goods and West Elm have reported revenue jumps this summer, with many Americans spending more on goods that they could use at home or while socially distancing outdoors. Dick’s reported a record quarter last month, fueled by outdoor activities like golf, camping and running.
“When you look at the numbers, it was V-shaped,” Sucharita Kodali, a retail analyst at Forrester Research, said of the recovery. ”It was just extremely poorly distributed across different sectors.”
Michael Gapen, an economist at Barclays, has been surprised by how much spending has migrated from one sector of the economy to another. Instead of spending on restaurants, people bought more groceries and liquor. They took on home improvement projects or bought new cars instead of spending that money on travel.
Mr. Gapen attributes this shift partly to resilient consumers, but also to businesses that have found a way to deliver goods to people’s homes.
“It’s the Amazonification of the world that has facilitated this,” he said. “If this pandemic hit 10 to 15 years ago, I am not sure we would have been able to make this shift. It reflects how nimble certain businesses have become.”
Raytheon Technologies, the American aerospace and defense manufacturer, said Wednesday that it would eliminate 15,000 commercial aerospace and corporate jobs as the pandemic continued to suppress demand for commercial air travel.
That’s nearly double the company’s previous estimate of roughly 8,500 job cuts, which were announced in July. The reductions are part of an effort to reduce costs by $2 billion and conserve $4 billion in cash this year.
“And we’re not done yet looking for further ways to reduce structural costs in all of our businesses,” Raytheon’s chief executive, Gregory J. Hayes, said at the Morgan Stanley Laguna Conference, which was held virtually this year.
Reducing costs would allow the business to emerge stronger when air traffic returns to normal levels, a process that could take years, Mr. Hayes said.
“We see a gradual return to flight across all of the commercial markets,” he said. “But probably not a full return to 2019 levels until somewhere around 2023.”
Raytheon has eliminated some of the jobs already, and the bulk of the cuts will be made this year, Michele Quintaglie, head of media relations, said in an interview.
The global economy has been rebounding faster from coronavirus lockdowns than expected just a few months ago, as actions by governments and central banks to support businesses and households have helped prevent a more dire downturn, the Organization for Economic Cooperation and Development said in a new report Wednesday.
But the recovery already appears to be losing some momentum, especially in countries where a resurgence of the virus has led to a new wave of local lockdowns, the organization warned.
The global economy is now on track to contract by 4.5 percent this year — still a historic decline, but less than the 6 percent fall predicted in June. If the virus is kept under control, growth worldwide could expand by 5 percent next year. A more forceful return of the pandemic could cut that outlook by two to three percentage points, the organization said.The report noted that the overall numbers mask “considerable differences across countries,” and pointed out that China, the United States and Europe are all doing better than projected in June.
For example, China is now expected to be the lone major economy to expand this year, growing 1.8 percent over 2019, compared with the earlier estimate of a 2.6 percent contraction. The study forecasts the United States ending the year with a 3.8 percent contraction, an improvement from June’s forecast of a 7.3 percent contraction.
India, Mexico and South Africa, on the other hand, are predicted to do worse than expected as the virus hits their economies. The earlier forecast, for example, predicted India’s economy would shrink by 3.7 percent; now the prediction is a 10.2 percent contraction.
The O.E.C.D.’s forecasts assumed local outbreaks would continue but that countries would use local restrictions rather than resume nationwide lockdowns to contain the virus. It also assumed a vaccine would not be widely available until late next year.
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Stocks on Wall Street ended a bumpy day with a decline on Wednesday as investors assessed data showing that retail sales are slowing, while the Federal Reserve indicated that it would not be raising interest rates for several years.
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The S&P 500 fell about half a percent, after having gained nearly 1 percent earlier in the day. The Nasdaq composite again fared worse than the broader market, falling more than 1 percent.
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The Federal Reserve’s latest policy statement showed that officials expect to leave interest rates near zero for years — through at least 2023 — as they try to coax the economy back to full strength.
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New data showed that the recovery in retail sales slowed in August. Retail sales increased 0.6 percent, compared with expectations for a rise of 1 percent.
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European markets were mixed with the STOXX Europe 600 index up less than half a percent, while the FTSE 100 in Britain dropped slightly. Asian markets also ended the day mixed, with the Nikkei in Japan slightly higher and the Hang Seng Index in Hong Kong in negative territory.
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Oil prices rose, with Brent crude, the international benchmark, gaining more than 4 percent, after Hurricane Sally shut down more than a quarter of U.S. offshore production. Adding to the gains was data showing that oil stockpiles have decreased.
Hitachi said on Wednesday that it would end its eight-year quest to build nuclear plants in Britain. The announcement from the corporate giant’s Tokyo headquarters appears to draw the long saga of Hitachi’s nuclear efforts in Britain to a close.
The decision to pull out leaves unanswered questions about the fate of Hitachi’s prospective site on an island off Wales and about Britain’s future electric power supply. If Britain requires new nuclear power stations, then the Wales site is considered a top candidate to be sold to another developer.
Hitachi’s inability to agree to terms on financing with the British government led to an announcement in January 2019 that it would suspend work on Anglesey Island in Wales and at another site in England. It was forced to write off about $2.75 billion.
Recently, there has been hope in the British nuclear industry that the Wales project could be revived. On Wednesday, Hitachi quashed those hopes, saying “the investment environment has become increasingly severe due to the impact of Covid-19.”
There is a lively debate in Britain about whether the country needs to build new nuclear power plants in order to generate emissions-free power to meet ambitious climate change targets. Most of Britain’s nuclear plants are expected to be retired for age reasons by 2030.
In a statement on Wednesday, Duncan Hawthorne, chief executive of Horizon Nuclear Power, Hitachi’s unit in Britain, appeared to try to stoke interest in the company’s sites. “We will do our utmost to facilitate the prospects for development, ” he said.
