WASHINGTON - America's economic recovery is showing early signs of stalling as coronavirus cases surge again, said Federal Reserve chairman Jerome Powell on Wednesday (July 29), as the central bank announced that it would hold interest rates steady at close to zero.

"On balance, the pace of the recovery looks like it has slowed since the cases began that spike in June," said Mr Powell, although he stressed that it was too early to say how large and sustained the slowdown in recovery would be.

Mr Powell noted that the economic rebound had been stronger than expected, he said at a press conference at the end of a two-day meeting of the Federal Reserve's policy-making board.

Economic activity had picked up at the beginning of May right through June, as job gains reversed about a third of the job losses from March and April and consumer spending recovered about half of their drop.

But the situation changed as the number of confirmed Covid-19 cases began to rise in the middle of June in many states around the United States, said Mr Powell.

He said that some measures of consumer spending based on debit and credit card data have moved down, and that recent labour market indicators point towards a slowdown in job growth, particularly among smaller businesses.

"Hotel occupancy rates have flattened out. People aren't going out to restaurants, bars, gas stations, pharmacies and beauty salons as much," he said, although he noted that housing and motor vehicle sales had remained strong.

Mr Powell said that the path of the economy would depend to a very high extent on the course of the virus and the measures taken to keep it in check.

"Social distancing measures and fast reopening of the economy actually go together. They're not in competition with each other," he said.

Earlier, the Federal Open Market Committee announced it would keep interest rates unchanged at 0 to 0.25 per cent indefinitely, until it was "confident that the economy has weathered recent events".

It also vowed to use its full range of tools to support the economic recovery.

"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," it said in its post-meeting statement.

"The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," it added.

The decision had been expected by markets, which had a muted reaction to the news. Separately, Fed officials also announced that they would extend their emergency lending programs until the end of the year.

Calling the pandemic the "biggest shock to the US economy in living memory", Mr Powell said there was a need for more fiscal support as he praised the earlier coronavirus packages that had "kept people in their homes and businesses in business".

Congress is currently drawing up a fresh coronavirus relief Bill, with the US$600 (S$824) weekly addition to jobless benefits officially set to expire on July 31. But negotiations are stalling as Democrats and Republicans remain far apart on issues such as unemployment insurance and assistance for renters and homeowners.

Even if the reopening goes well, it will still take a long time for certain parts of the economy that involve "lots of people gathering together in close proximity" to bounce back, Mr Powell warned, citing restaurants, bars, hotels and travel accommodation as examples.

"Many of the people who were laid off from those industries... can't go back to their old job. There won't be enough jobs for them. Those people are going to need support if they're to be able to pay their bills, to continue spending money, to remain in their current rental house or apartment," he said.