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| - With the economy still reeling from the damage inflicted by the coronavirus pandemic, the Federal Reserve confirmed Wednesday it will keep the benchmark interest rate at zero until the recovery is underway. At the conclusion of its two-day meeting, members of the Fed's policy-setting Federal Open Markets Committee (FOMC) released economic projections showing they expect the economy to contract by 6.5 percent this year, while unemployment would fall to 9.3 percent from its current 13.3 percent. "The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world," the FOMC statement said. "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 warned. Despite nearly two million cases and 112,000 deaths from COVID-19 in the US, there is evidence the worst may have passed for the economy. The employment report last week showed 2.5 million jobs were added in May, but more than 20 million people are still laid off. As a result, the FOMC will keep the key rate 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." And the median forecast among FOMC members shows they expect the key rate to stay the same through 2022 at least, before edging back up near 2.5 percent over the longer term. Only two central bankers projected the rate would rise off zero in 2022. The Fed also said it will continue to work to ensure households and businesses have access to credit by continuing to purchase Treasury bonds and mortgage-backed securities at its current rate. Powell said following the meeting that the programs are "providing financing where not otherwise available," and also increase the willingness of private lenders to provide credit. The Fed will continue to use its tools "forcefully, proactively and aggressively until we are confident that we are fully on the road to recovery," he told reporters. The central bank already cut rates to zero in March and has been pumping trillions of dollars into the economy -- essentially printing money -- amid the crisis. And this week, it again expanded its planned Main Street Lending Program for small- and medium-sized businesses, which Powell said was the result of continued feedback from potential borrowers and will make the program more effective. In their forecasts, Fed officials expected a solid rebound in 2021, with economic growth of 5.0 percent that would then slow to 3.5 percent in 2022. Powell said the second quarter of 2020 will be "historically weak" but the recovery will gain strength later in the year. Central bankers also discussed how they can reinforce their message that policies will continue to provide stimulus, with "explicit forms of forward guidance" on what would be needed before the Fed alters rates, Powell said, but no decision was made. IHS Markit economist Ken Matheny said the Fed at some point will reveal economic targets that will need to be met before it considers raising rates. "We expect the FOMC to announce, eventually, threshold-based forward guidance that would establish economic benchmarks to be attained before the target for the federal funds rate would be raised above its effective lower bound," he said in an analysis. "Those benchmarks are likely to include references to reaching approximately full employment and achieving two percent inflation on a sustained basis." hs/cs
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