In a challenge to the US stock market’s recent optimism, the Fed predicted the US economy would shrink 6.5% in 2020 and unemployment would still be at 9.3% at year’s end.
Data out earlier had also shown core US consumer prices fell for a third straight month in May, the longest stretch of declines on record.
As a result, Fed Chair Jerome Powell said he was “not even thinking about thinking about raising rates”. Instead, he emphasised recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.
“While Powell did not commit to any new action at this time, his focus on downside risk and uncertainty reinforces the message that they will take further action, probably by September,” was the take of economists at JPMorgan.
“Outcome or calendar based guidance looks likely and Powell left the door open for moving to some form of interest rate caps.”