Fed keeps interest rates near zero, saying the recovery will depend on the pandemic

Federal Reserve Chair Jerome H. Powell testifies before the House Financial Services Committee on Capitol Hill on June 30, 2020 in Washington, DC. Federal Reserve Chairman Powell and Treasury Secretary Steven Mnuchin testified on their agencies’ response to the coronavirus pandemic. Tasos Katopodis/Getty Images

The Federal Reserve left interest rates unchanged near zero in its monetary policy update Wednesday, and it once again reiterated that the economic recovery will depend on the path of the virus.

"The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the central bank said in a statement.

Even though the economy was beginning to rebound after grinding to a halt during the pandemic lockdown in the spring, the level of economic activity was still well below the levels from the start of the year, the Fed said.

"What that data shows is that the pace of the recovery looks like it has slowed since the cases began that spike in June," Federal Reserve Chairman Jerome Powell said in Wednesday's news conference.

"On balance it looks like the data are pointing to the slowing in pace in the recovery."

Powell again stressed that much of the burden of the pandemic crisis was borne by minorities and women, as well as low-wage earners.

While Congress's stimulus package in the spring helped keep businesses open and people in their homes, America is still in midst of a joblessness crisis and not all positions lost are expected to return. That means that some people will need support even when the economy recovers, Powell said. All in all, more still needs to be done in terms of both fiscal and monetary stimulus, Powell said.

The central bank Tuesday announced an extension to various pandemic lending facilities, including the main street lending facility that lends to small and medium-sized businesses. The facilities will now run through the end of the year.

On Wednesday, the bank also announced an extension of its temporary US dollar liquidity swap lines and the repurchase agreement facility for foreign central banks and international monetary authorities until March next year. This extension will ensure liquidity in dollar-funding markets around the world. The US currency is used in contracts around the world.

US stocks bounced higher following Powell's remarks, and finished the day higher.

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