The Federal Open Market Committee released minutes Wednesday from its most recent meeting, which concluded April 29 with the central bank’s policymaking arm holding steady on interest rates.
After slashing its benchmark rate to near zero as the coronavirus pandemic took hold, the FOMC voted to keep the rate there in a range between 0% and 0.25% and not move it until a recovery is firmly in place.
The action came as central bank officials noted the excessive damage the virus was doing to the economy and the potential for damage ahead.
“Participants commented that, in addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term,” the minutes said.
One area of particular concern is what should happen in the event that coronavirus infections should surge later in the year. The minutes noted that the “more pessimistic” outlook for a rebound was probably as likely as the baseline forecast for improvement.
“In this scenario, a second wave of the coronavirus outbreak, with another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end, inducing a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year,” the summary said.
As far as specific threats, the meeting summary noted vulnerability to the banking sector and the potential for bankruptcies from nonfinancial companies.
They also noted the danger of high unemployment levels as workers became separated from the workforce. The burden for the economic downturn, which is likely to be the worst in U.S. history for the second quarter, “would fall disproportionately on the most vulnerable and financially constrained households in the economy.”
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