Citing gloomy economic conditions and resolving to remain proactive until the U.S. rebounds from the coronavirus crisis, the Federal Reserve announced Wednesday that it would maintain its current target interest rate of 0% to 0.25%.
“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world,” a statement released by the central bank’s Federal Open Market Committee (FOMC) read.
“The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.”
“While many standard economic statistics have yet to catch up with the reality we are experiencing, it’s clear that the effects on the economy are severe,” Federal Reserve Chairman Jerome Powell said in remarks after the FOMC meeting.
“Millions of workers are losing their jobs. Next week’s jobs report is expected to show that the unemployment rate, which was at 50-year lows just two months ago, has surged into double digits. … Overall, economic activity will likely drop at an unprecedented rate in the second quarter.”
The FOMC added that it expects rates to stay in this target range until “it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” The committee will keep an eye on developing conditions, including incoming information related to public health, global changes and muted inflation pressures in order to “act as appropriate to support the economy” moving forward.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, expressed positivity about the Fed’s decision to stay the course on monetary policy.
“The Federal Reserve has pulled out all the stops to help the economy and financial markets weather the current pandemic,” he said. “In their statement today, they made clear that supports would remain in place until the economy regains full employment and inflation trends return to normal.”
Notably for the mortgage industry, the Fed did not specify a pace for purchases of agency mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS), although Powell signaled in a conference call that the rate of the Fed’s purchasing program would slow.
The FOMC’s statement indicated that it will “continue to purchase Treasury securities, agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning.”
“It is clear [the Federal Reserve] want their actions to result in lower rates for mortgage borrowers and recognize that this can only happen in the context of orderly markets,” Fratantoni said. “We expect that they will continue to modulate their purchases over the next few weeks, so long as markets remain stable.”