WASHINGTON – U.S. consumers lifted their spending in May and June but businesses remained cautious because of the tremendous uncertainty surrounding the economic outlook, Federal Reserve officials said at a policy meeting last month.
The nascent economic recovery faces several risks, Fed officials said in discussions during their most recent meeting on July 28-29. Those risks include another outbreak of the coronavirus and that the U.S. government would pull back on the financial relief it had provided to households, businesses and state and local governments, according to minutes released Wednesday.
At its July meeting, the Fed decided to keep the short-term interest rate it controls pinned at near zero and to continue its bond purchases of about $80 billion of Treasuries and $40 billion of mortgage-backed securities each month. Those bond buys are intended to inject cash into financial markets to keep credit flowing, and to hold down interest rates.
Federal Reserve Chair Jerome Powell also warned at a news conference following the meeting that resurgent viral outbreaks in June and July threatened to weaken the economy.
The Fed added a new sentence to the statement it issues after each meeting: “The path of the economy will depend significantly on the course of the virus.”
Since the Fed’s meeting, negotiations on another government aid package have broken down and there is little sign that serious talks will resume. Yet Powell and other Fed officials have expressed concern that the end of the additional unemployment aid and the expiration of support for small businesses will slow the recovery.
“There will be a need for more support from us, and from fiscal policy,” Powell said after the July meeting, referring to congressional tax and spending powers.
Fed officials said in the minutes that the rebound in consumer spending had been “particularly strong,” in part because of the income support provided by Congress. Minutes of each Fed meeting are released after a three-week lag.