Amid the economic fallout from the pandemic, the Federal Reserve said on Wednesday that it is keeping rates on hold until at least 2022. It also projected that the U.S. economy will expand by 5% in 2021, but only after a 6.5% contraction in 2020.
At the end of its two-day meeting, the Federal Open Market Committee left the fed funds rate unchanged at between zero and 0.25%.
“We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates. What we’re thinking about is providing support for the economy. We think this is going to take some time,” said Federal Reserve Chairman Jerome Powell.
The Fed also announced plans to increase its bond holdings, aiming for $80 billion a month in Treasury purchases and $40 billion in mortgage-backed securities.
Powell anticipates that an economic recovery will take place slowly, with the “general expectation of an economic recovery beginning in the second half of this year and lasting over the next couple of years, supported by interest rates that remain at their current level near zero.”
The stock market plunged Thursday morning, with Dow futures down 900 points, as investors grappled with news of increasing coronavirus cases in states that have begun reopening and the implications of Wednesday’s Federal Reserve announcement.
What’s Jim Cramer’s take on the Fed?
“Jerome Powell's saying, 'We're going to be easy, and we're going to keep lending money until we get a vaccine.' I think all these guys recognize that until we get a vaccine, everything's stopgap. But when we get a vaccine, we're going to be on fire," said Cramer.