US Federal Reserve warns of severe inflation

The Federal Reserve said Wednesday the coronavirus pandemic has already caused “tremendous” health and economic hardship, and warned the damage to the US economy will continue.

The 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 policy-setting Federal Open Market Committee (FOMC) said at the conclusion of its two-day meeting.

The central bank kept the benchmark interest rate at zero, and said it will remain there until the economy has weathered the crisis and is ready to resume growth.

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The Fed statement followed the shock announcement that the US economy collapsed in the first quarter, an early sign of the damage wrought by the coronavirus.

The 4.8 percent contraction in GDP in the first three months of the year was all the more worrying since the most strict business shutdowns and stay-at-home orders did not occur until the final weeks of March.

Economists are predicting a decline in growth by as much as 40 percent in the second quarter amid the collapse in consumer spending and business investment.

Job losses have hit 26 million since mid-March, and companies are beginning to make more permanent cuts due to the uncertain outlook, including aerospace giant Boeing, which plans to slash 10 percent of its workforce.

The central bank had moved quickly to get ahead of the bad news, with the FOMC slashing the benchmark lending rate to zero by the middle of last month following two emergency meetings.

It pledged to hold rates at zero “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 coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses,” the FOMC said.

The committee pledged to continue its efforts to inject funds into the financial system to ensure it doesn’t freeze up and also buy US Treasury debt, mortgage-backed securities and other corporate debt “in the amounts needed to support smooth market functioning.”

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