The Fed Keeps Interest Rates 0-0.25 Percent, Signals The US Economy Is Still Down

Fed Governor Jerome Powell. (Photo: Twitter @federalreserve)

JAKARTA - The central bank of the United States (US) or The Federal Reserve has decided to maintain its benchmark interest rate in the range of 0-0.25 percent. The Fed Governor Jerome Powell said the decision was made because of the ferocious effects of the COVID-19 pandemic in the country.

"The surge in COVID-19 cases in the United States and restrictions aimed at containing the spread of the virus are starting to weigh on the economic recovery," he said.

This refers to a decrease in consumer purchasing power and a slowdown in the recruitment of unskilled workers, especially by small businesses.

The statement regarding the retention of interest rates by the Fed directly linked the economic recovery to the health crisis in Uncle Sam's country. It is recorded that more than 150 thousand Americans have died from COVID-19.

Powell explained, much remains unclear about the direction of the US economy. The fiscal stimulus program he implemented to sustain consumer spending in recent weeks is coming to an end.

This new coronavirus, said Powell, is moving so fast that the entire world is at risk from the impact of a pandemic that has yet to pass. He believes economic recovery will take a long time, even when the economy reopens and people return to work.

The United States' Gross Domestic Product (GDP) is likely to fall towards a record minus 34.8 percent in Q2 2020 due to lockdowns in several states. What is quite hopeful, Powell said that not all sectors of business activity have slumped. He gave an example, the housing sector could be a bright spot.

Wells Fargo & Co senior economist Mark Vitner said the never-ending wave of the virus was the main reason for the Fed's decision to hold on to interest rates. According to him, the economy is very vulnerable when the rate of spread of the virus seems unstoppable.

"This shows how difficult it is to make economic policy at a time when we don't know what the virus will do next," Vitner said.