Fed extends swap lines and warns of slowing USA economy

  • Fed extends swap lines and warns of slowing USA economy

Fed extends swap lines and warns of slowing USA economy

Russ Mould, investment director at AJ Bell, said there was "disappointment" among investors at the Fed's warning recovery depended on the course of the virus.

Gold prices gained in volatile trade overnight, nearing the last session's record peak at one point, after the US Federal Reserve vowed to keep interest rates near zero as the rapid rise in coronavirus cases dampens hopes for an economic recovery.

Consumer confidence has taken a hit.

The Fed reiterated that its commitment to using its full range of tools to support the USA economy and noted that the path of the economy will depend on the course of the coronavirus outbreak.

The dollar has been tumbling on expectations that the Fed will continue its ultra loose monetary policy for years to come and on speculation that it will allow inflation to run higher than it has previously indicated before raising interest rates.

"Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year", the Fed said in its statement on Wednesday.

Fed said the committee would maintain 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.

Worldwide gold rose on Friday en route to its best month in more than four years as the dollar slid further after dismal USA data added to doubts about a swift recovery from the pandemic-induced economic slump, driving investors towards the safe-haven metal, a Reuters report said. The 10-year Treasury yield was steady on the day around 0.58 per cent as the US bond curve steepened. Lloyds (LLOY.L), one of the UK's largest banks, became the latest lender to set aside billions more to deal with bad loans because of COVID-19, while new data also showed British carmakers suffering their worst quarter since 1954, hitting auto stocks.

"It's a bit ominous, to be frank. That sentence shows the primacy of COVID-19 in their outlook and the uncertainty of their outlook because of it".

Observers said focus now turns to the next policy meeting in September, which could see more measures unveiled.

The Fed said that over the coming months the Federal Reserve will increase its bond holdings "at least at the current pace".

A government report due out later in the day is expected to show a record 34% drop in annualised economic output last quarter.

"Since the Fed last met, the USA economy has been treading water and there has been a resurgence in the virus". But the immediate outlook hinges largely on where infections go from here and how much more fiscal support lawmakers deliver in the meantime. But progress toward recovery has been complicated in recent weeks by a new wave of coronavirus outbreaks across major states in the South and West including Texas, Florida, California and Arizona. Republicans are split over whether to support $1 trillion in new spending, and Democrats want a figure closer to the $3 trillion Congress has already committed to fight the crisis.