Fed "V-shaped rebound unlikely"... Long-term zero interest rate expected

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. Federal Reserve (Fed) appears to have the perception that it will maintain zero interest rates for a prolonged period even after the end of the COVID-19 pandemic. This is due to concerns that a V-shaped rapid recovery from the economic downturn caused by COVID-19 will be difficult.

The minutes of the Federal Open Market Committee (FOMC) meetings held on the 3rd and 15th of last month, released on the 8th (local time), provide important insights into the committee members' stance on COVID-19 and the circumstances surrounding the interest rate cuts.

According to the minutes, Fed members shared the recognition that the crisis brought on by COVID-19 poses significant downside risks to the U.S. economy.

Most members supported the bold decision to cut rates and expressed the opinion that zero interest rates should be maintained until there is a clear understanding that the COVID-19 situation has ended.

Although some expressed concerns that aggressive rate cuts could increase market anxiety and reduce room for future policy responses, the trend toward introducing zero interest rates was unstoppable. Some members proposed that the Fed has additional measures to address negative effects caused by the rate cuts. Some members also raised concerns that this rate cut could lead to expectations of negative (-) interest rates.

Opinions on the future economic outlook were also divided. Some members forecasted that the U.S. economy would begin to rebound in the second half of this year, while others argued that noticeable recovery would be difficult until next year. This revealed that there are negative views on the future U.S. economy even within the Fed. However, in both scenarios, the potential for inflation was expected to decrease.