WASHINGTON â€” The Federal Reserve left interest rates unchanged and near zero at its meeting Wednesday as the central bank projected high unemployment for several years and a long slog back from the pandemic-induced recession.
In their first economic projections this year, Fed officials indicated that they expect the unemployment rate to end 2020 at 9.3 percent and remain elevated for some time, coming in at 5.5 percent in 2022. That would be well above the level they expect to prevail over the longer run in a healthy economy and far above the historically low jobless rates that preceded the virus.
â€Many millions have lost their jobs,â€ Fed Chair Jerome H. Powell said at a news conference following the Fedâ€™s two-day policy meeting, adding the extent of the downturn and pace of the recovery remain â€œextraordinarily uncertain.â€
Mr. Powell said that the Fed will do â€œwhatever we can, and for as long as it takesâ€ to support the recovery and â€œlimit lasting damageâ€ to the economy.
That includes keeping rates near rock-bottom for the foreseeable future, Mr. Powell said, noting there would likely be no rate increase through at least 2022.
The Fed is projecting a particularly sharp hit in 2020, with officials expecting output to contract by 6.5 percent at the end of this year compared to the final quarter of 2019, before rebounding by 5 percent in 2021.
The new forecasts predict a slower path back to economic strength than the Trump administration â€” and perhaps the stock market â€” seems to expect as the economy climbs out of a virus-spurred downturn. The Fed skipped its quarterly economic summary in March as the pandemic gripped the United States, sowing uncertainty as business activity came to a near standstill.
â€œThe 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,â€ the Fed said in the post-meeting statement that accompanied the data outlook.
In addition to keeping borrowing costs low, the Fed pledged to continue buying government-backed debt â€œat least at the current paceâ€ to sustain smooth market functioning, though they would â€œclosely monitor developmentsâ€ and were prepared to adjust those plans â€œas appropriate.â€
The last time the Fed released projections was in December, when officials expected 2020 unemployment to close out at 3.5 percent with 1.9 percent inflation and 2 percent growth.
The coronavirus upended that outlook. Unemployment rocketed to 14.7 percent in April before easing to 13.3 percent in May. Economic activity tanked so sharply as states issued stay-at-home orders in March and April that the National Bureau of Economic Research announced this week that the United States entered a recession after the economy peaked in February.
The central bankâ€™s release came hours after the Organization for Economic Cooperation and Development put out a report warning that the world economy faces the most severe downturn in a century and could experience a halting rebound.
â€œExtraordinary policies will be needed to walk the tightrope towards recovery,â€ said Laurence Boone, the O.E.C.D.â€™s chief economist.
The Fedâ€™s caution and the O.E.C.D.â€™s pessimism contrasts with the more optimistic tone Treasury Secretary Steven Mnuchin took while testifying before Senators on Wednesday. He said in prepared remarks that the economy was â€œwell-positioned for a strong, phased reopening of our country,â€ though he noted during the testimony itself that some sectors had sustained â€œsignificant damage.â€
And those messages are very different from the one coming from President Trump, who has been celebrating on Twitter as stock indexes rally.
â€œNASDAQ HITS ALL-TIME HIGH. Tremendous progress being made, way ahead of schedule. USA!â€ he wrote on Twitter earlier on Wednesday.
Mr. Powell has emerged as a voice of economic caution since the pandemic took hold. He has warned that both monetary and fiscal policy must stand ready to do more to make sure the pandemic does not permanently scar the economy, and he has been clear that the Fed does not mistake its early successes in calming markets and reinvigorating lending as giving an all-clear signal.
â€œWhile the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risk,â€ Mr. Powell said on May 13.
Since then, some data points have come in above expectations. Unemployment was projected to increase to around 20 percent but it declined instead. Consumer spending is rebounding, though it remains below its level before the virus, based on real-time trackers.
The central bank has taken extraordinary steps already to support the U.S. economy. The Fed cut interest rates to near zero in a series of back-to-back meetings in March. It has been snapping up government-backed bonds to keep markets functioning normally, and has rolled out a series of emergency credit programs aimed at ensuring that businesses and state and local governments can borrow money.