Fed extends swap lines and warns of slowing USA economy

Gold price rally against US Dollar

Calling the COVID-19 economic downturn the most severe "in our lifetime", Federal Reserve Chairman Jerome Powell stressed that there is a long road ahead to get back to where the USA economy was only months ago and noted that more fallout from the virus lies ahead.

"You've a lot of people trading gold short-term now, so we are going to get some pullback just on what I would consider simple profit-taking since it's had such an incredible run year-to-date", Mr Sica said.

Powell said that not all sectors of the economy were weakening, citing the housing sector as one bright spot. "The Fed is putting health again front and center in its statement, which is impactful and meaningful", said Nela Richardson, investment strategist at Edward Jones in St. Louis.

"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.

That indication that the Fed could be a near zero rates for a long time to come buoyed markets Wednesday. Globally, gold prices surged on Friday en route to its best month in more than four years as the dollar slid further after dismal United States data added to doubts about a swift recovery from the pandemic-induced economic slump, driving investors towards the safe-haven metal, according to Reuters.

Chairman Powell said that the monetary policy will be kept accommodative until the Fed is very confident that the turmoil from the pandemic and the economic fallout is behind us.

The vote, to leave the federal funds target rate in a range of 0 per cent to 0.25 per cent, was unanimous.

The statement came as the policy-setting Federal Open Market Committee (FOMC) held the benchmark lending rate at zero as expected, and did not make any other changes to its guidance.

Fed plans to increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to support the flow of credit to households and businesses, over coming months and sustain smooth market functioning.

There is also a worry Powell's calls for more government aid to help the economy might not be heeded by lawmakers in Washington, who remain poles apart as they try to hammer out a new stimulus.

Before Wednesday's decision, the S&P 500 index of USA stocks was within about four per cent of the record high set in mid-February after losing more than a third of its value in the early days of the pandemic.

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