US Federal Reserve sees interest rates dropping near zero through 2022 to tackle coronavirus COVID-19 damage

The US Federal Reserve on Wednesday (June 10) held interest rates near zero and dropped hints that it would maintain that level until the end of 2022 to check the damage caused to the US economy due to coronavirus COVID-19 pandemic.

All members of the Federal Open Market Committee said that the rate would remain near zero through 2021 and all but two members of the high-powered committee say that rates would stay near zero in 2022 as well. The projections are the Fed's first since December 2019.

The Federal Open Market Committee also set a floor for its asset purchases, guaranteeing it would take in around USD 80 billion in Treasurys each month and USD 40 billion worth of mortgage-backed securities.

"To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions," the committee said in a statement after the conclusion of its two-day meeting.

It may be recalled that the US central bank slashed its benchmark interest rate to a range of 0% to 0.25% in mid-March in an attempt to safeguard the economy against the fallout of coronavirus outbreak. The US Federal Reserve then adopted unprecedented lending programs extending credit to corporations, households, and municipalities to boost the economy.

Addressing a press conference, Fed Chairman Jerome Powell expressed measured optimism about the May jobs report. The Friday report left the expert in total shock as unemployment fell to 13.3% from 14.7% in April, while it was predicted by economists that the jump would be roughly 20%. Powell remarked that the positive report showed that relief policies adopted by Fed Reserve helped in aiding the economy, but the US still faces "considerable risks" in the immediate future.

"The Fed is clearly signaling that we are not by any means out of the woods yet. The jobs report was probably as much of a positive surprise to them as the rest of the market. But it doesn't change the fact that a recovery is going to take years, not months," said James McCann, a senior global economist at Aberdeen Standard Investments to Business Insider. 

Powell also talked about the Fed's late rollout of the Main Street Lending Program. In May, Powell had said that all nine credit facilities would be online by early June. "This last set of changes we've made are very positive for the facility. We've used the time well, we think," he said, adding that the Fed's relief programs "are unique — there's no playbook here."