Fed “not in any hurry” to raise interest rates: Powell

Chairman calls road to recovery “highly uncertain”

TRD NATIONAL /
Apr.April 29, 2020 04:45 PM
Federal Reserve Chairman Jerome Powell (Photo by Sarah Silbiger/Getty Images)

Federal Reserve Chairman Jerome Powell (Photo by Sarah Silbiger/Getty Images)

The Federal Reserve won’t push up interest rates any time soon, the central bank’s chairman said Wednesday as the U.S. economy shrank the most in over a decade.

The Fed’s Federal Open Markets Committee said it was keeping the range of its benchmark interest rate between 0 percent and 0.25 percent after slashing rates twice in recent weeks as part of sweeping measures to contain the economic fallout of Covid-19.

“The committee expects to 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,” it said in its statement.

The pandemic has pummeled markets around the globe and caused U.S. gross domestic product to plunge 4.8 percent in the first quarter, the Department of Commerce said Wednesday. In the fourth quarter of 2019, GDP grew at an annual rate of 2.1 percent.

Mike Fratantoni, chief economist at the Mortgage Bankers Association, which represents the real estate finance industry, said he expects GDP to decline at a double-digit rate in the second quarter.

In a press conference, Fed Chairman Jerome Powell acknowledged the “highly uncertain” path facing the U.S. as it tries to regain the economic strength it had prior to the virus, which he called an “exogenous shock.”

“We’re not going to be in any hurry to move rates up,” he said.

The near-zero rates make it cheaper for real estate investors and homeowners to borrow. But it also means consumers’ savings accounts will see “practically no growth,” said George Ratiu, senior economist at Realtor.com.

“With many home shoppers looking to their savings accounts as a springboard to homeownership, the marginal returns will delay the process,” he said. “In addition, for many retirees and others dependent on fixed incomes, low rates are likely to dampen spending, and could lead people toward riskier investments for higher returns.”

The Federal Open Markets Committee also said it would continue to buy Treasury securities and government-sponsored-agency residential and commercial mortgage-backed securities to help keep markets afloat.

Fratantoni said the Fed’s move to buy residential MBS deals, announced last month, has helped to keep mortgage markets functioning. In mid-March, when the economic toll of the virus was escalating, lenders struggled to price and sell mortgages.

While mortgage applications dropped last week from the week before, according to data from MBA, there was a rise in home purchase applications. That provides a “glimmer of hope” that the housing market will start moving again as states slowly re-open, Fratantoni said.

“The Fed’s actions to calm that volatility have been extremely positive,” he said.

The market appeared to react positively to the Fed’s statement, with the S&P 500 closing around 2.7 percent higher. Investors in public real estate investment trusts also were optimistic: The FTSE Nareit All REITs index rose 1.6 percent, with some REITs, including office landlord SL Green Realty and mall owner Macerich, far outperforming the broader market.

Other real estate stocks also gained Wednesday. Brokerages Newmark Group, Cushman & Wakefield, JLL and CBRE Group all outperformed the S&P 500. Hotel companies, after suffering severe blows from the market fallout several weeks ago, rose as well. Marriott International closed up 9.8 percent and Hilton Worldwide Holdings finished the day almost 5 percent higher.

For businesses struggling to stay in operation — and perhaps pay rent — the Fed’s corporate lending facilities, which will increase the flow of credit to households and businesses, are set to be deployed “fairly soon,” Powell said. But the Fed’s Main Street Lending Program, meant to provide loans to small- to mid-sized businesses, is taking longer to put together.

Unlike the Small Business Administration’s Paycheck Protection Program, which ran out of funds as applications from businesses for forgivable loans poured in, Powell said the Fed’s credit facilities are funded by the Treasury, which “has plenty of equity.”

“If demand for our facilities is greater than we’ve estimated, then we’ll expand them, and we have the availability to do that,” he said.

Write to Mary Diduch at [email protected]


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