Fed Holds Interest Rates At Near-Zero, Says Recovery Path Hinges On COVID Pandemic

The vote kept the ongoing coronavirus pandemic at the forefront of its monetary policy decision making Thursday, saying the path to recovery is largely dependent on its the length and breadth of its damage.

The U.S. Federal Reserve kept its key lending rate unchanged Thursday, while repeating its concern that the path to recovery for the world's biggest economy will largely depend on the course of the coronavirus pandemic.

All voting members of the Fed's Open Markets Committee voted to hold rates at a record low range of between 0.1% and 0.25% while repeating their commitment to using its full range of tools to support the ongoing recovery. It also said it won't raise interest rates until inflation stays consistently above its 2% target.

"The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world," the Fed said in a statement that changed only seven words from its last rate setting meeting in September.  "Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year."

"Weaker demand and earlier declines in oil prices have been holding down consumer price inflation," the statement added. "Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."

Benchmark 10-year Treasury note yields were little changed at 0.776% in the immediate minutes following the Fed statement, while 2-year notes traded at 0.151%.

"The bottom-line is that the ultra-accommodative stance of monetary policy should prime the U.S. economy for a more robust recovery upon the return to a more “normal” economic environment (perhaps by mid-2021)," said Jason Pride, CIO of private wealth at Glenmede.

"That said, in the short-run, the focus will remain on the prospects for a new fiscal package out of Congress, which may be possible before year-end once the election results are settled," he added. "But for now, the size, scope, and timing of that next package still remains unclear."

The U.S. economy grew the most on record over the three months ending in September as trillions of coronavirus relief from Congress -- as well as the Fed -- supported household and business spending.

Third quarter GDP growth was pegged at 33.1% on an annualized basis, the largest three-month increase on record and just ahead of the 32% surge that was forecast by economists and the final 31.4% decline -- another record -- tallied for the three months ending in June. 

Labor market strength, however, is beginning to ebb as the pandemic worsens and new cases hit record highs in various states around the country. 

Around 751,000 Americans filed for unemployment benefits last week, Commerce Department data indicated earlier Thursday, while a reading of private sector employment growth over the month of October from payroll processing group ADP came in well below Street forecasts at 365,000.

The Bureau of Labor Statistics will publish its official employment report Friday, with economists looking for a net jobs gain of around 700,000, a notable but not hugely significant slowdown from the 877,000 gain recorded in September.