Updated at 2:20 p.m. ET
The Federal Reserve left interest rates near zero as expected Wednesday and pledged to keep supporting an economic recovery that appears to be losing steam.
Most of the Fed members added that they expected interest rates to remain near zero through at least 2023, adding a more specific target to the central bank’s extraordinary commitment last month to allow the economy to run hotter to boost the number of people who can find employment.
“The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world,” the central bank said in a statement. “The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
Although the economy has climbed partway out of the deep hole dug by the pandemic this spring, there are signs that the rebound is slowing. Job gains have declined in each of last two months. Both retail sales and industrial production had smaller gains in August than the month before.
Federal relief programs — including small-business loans and supplemental unemployment benefits — that helped support the recovery earlier this year have largely expired. And Congress has so far been unable to agree on additional relief.
The Fed anticipates some improvement in the job market in the coming months. Unemployment is projected to fall to 7.6% by the end of the year, from August’s level of 8.4%. In June, Fed officials thought the jobless rate would still be above 9% at year’s end.
With millions of people still out of work, Fed Chair Jerome Powell has said additional government spending will likely be needed to support families and businesses until the economy more fully recovers.
The central bank itself has pumped trillions of dollars into the financial system to keep credit markets functioning properly. But its novel lending effort to support midsize businesses has gained little traction.
The Fed stressed once again Wednesday that a sustainable recovery is unlikely until the nation is able to get control of the pandemic. New coronavirus infections and deaths have declined since midsummer but remain high compared with most other countries.
The rate-setting committee reinforced Wednesday its intent to leave interest rates near zero until the economy returns to full employment and inflation is on track to exceed the Fed’s 2% target for a period of time. That’s consistent with the central bank’s major shift in long-term policy announced last month.
The Fed said at the time that it was adopting the new strategy to allow more people a chance to find work. The new approach would involve allowing the economy to run hotter by tolerating inflation above its 2% target as long as the average rate remained around that level.
Most of the Fed decision-makers expect rates will remain low for at least a few more years, although four members project higher rates in 2023 and one member sees a possibility of higher rates as early as 2022.
But two members of the committee dissented from the timeline altogether. Robert S. Kaplan wanted to maintain more flexibility, while Neel Kashkari preferred to target an inflation target of 2% “on a sustained basis.”