Fed expects interest rates to remain near zero through 2022, GDP to rebound by 5% next year

The Fed responded to the pandemic by taking a range of extraordinary actions to support the economy

The Federal Reserve on Wednesday projected that interest rates will remain near zero through 2022 and pledged to continue supporting a U.S. economy devastated by the coronavirus pandemic and the related lockdowns.

Continue Reading Below

The Federal Open Market Committee, in a unanimous statement, reiterated previous guidance that the benchmark federal fund rate will stay at a range between 0 percent and 0.25 percent until "it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals."

FED'S POWELL SAYS US ECONOMY MAY NEED MORE POLICY HELP TO AVOID 'PROLONGED' RECESSION

Central bankers also released their first economic projections since December, forecasting that GDP will plunge by 6.5 percent this year as the coronavirus pandemic triggered an unprecedented shutdown of American life before rebounding by 5 percent in 2021.

They expect unemployment to fall to 9.3 percent at the end of 2020 and drop to 6.5 percent in 2021. Even in 2022, central bankers expected the jobless rate to remain elevated at 5.5 percent, well above the pre-crisis level of 3.5 percent, a half-century low.

The projections showed all policymakers expect to keep the benchmark federal funds rate at near zero through the end of 2021. All but two officials saw rates staying there through 2022.

Fed officials skipped releasing their quarterly economic projections in March as they grappled with uncertainty over the virus outbreak.

The Fed's two-day meeting took place in the shadows of states rolling back stay-at-home mandates and allowing businesses to reopen, as well as a surprisingly good May jobs report. Employers actually added 2.5 million jobs last month -- economists widely expected a loss somewhere around 9 million -- and the unemployment rate dropped to 13.3 percent.

POWELL RULES OUT NEGATIVE INTEREST RATES, DESPITE TRUMP PRESSURE

“The Fed is clearly signaling that we are not by any means out of the woods yet," said James McCann, senior global economist at Aberdeen Standard Investments. "The jobs report was probably as much of a positive surprise to them as the rest of the market. But it doesn’t change the fact that a recovery is going to take years, not months."

Officials also said they would increase their purchases of Treasury and mortgage-backed securities in coming months "at least at the current pace" to sustain smooth market functioning.

The Fed has responded to the pandemic by taking a range of extraordinary actions to support the economy, including slashing interest rates to near-zero, purchasing an unlimited amount of Treasurys and launching crisis-era lending facilities to ensure that credit flows to households and businesses. It has also said it will buy corporate bonds and lend to states and cities.

In less than three months, the Fed has pumped nearly $2.9 trillion into the economy, and its balance sheet has expanded to $7.1 trillion, a record.

GET FOX BUSINESS ON THE GO BY CLICKING HERE