US Fed holds rate, to continue to buy $80B of bonds

US Fed holds rate, to continue to buy $80B of bonds

The U. S. Federal Reserve left its key interest rate steady, as widely expected, and said it would continue to increase its holdings of government bonds to support the flow of credit to households and businesses, boost inflation and employment in light of the “tremendous human and economic hardship” from the COVID-19 pandemic to the U.S. and global economy.

The central bank for the United States kept its target range for the federal funds rate at 0.0-0.25 percent, unchanged since two rapid-fire rate cuts totaling 150 basis points in early March.

The Fed confirmed it expects to maintain an accommodative monetary policy stance until it achieves its twin objectives of maximum employment and inflation of 2 percent over the long run and confirmed it in its latest projection that it expects to keep the federal funds rate at this level through 2023.

In addition to the rock-bottom interest rates, the Fed said it would continue to increase its holdings of Treasury securities by at least $80 billion a month and of agency mortgage-backed securities by at least $40 billion a month and will continue “until substantial further progress” is made toward reaching its objectives, underscoring its loose policy stance.

Reflecting the bounce-back in the U.S. and global economy in the third quarter after a contraction in the second quarter from lockdowns and other restrictions to movements, the Fed raised its forecast for economic growth this year to a contraction of 2.4 percent from September’s forecast of a 3.7 percent decline in gross domestic product.

“The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and the world,” the Fed’s policy-making body, the Federal Open Market Committee (FOMC) said, adding the path of the economy will depend significantly on the course of the virus, which continues to pose considerable risks to the economic outlook over the medium term.

In 2021 the U.S. economy is seen expanding 4.2 percent, slightly up from the earlier forecast of 4.0 percent, and then 3.2 percent in 2022 and 2.4 percent in 2023.

In the third quarter of this year U.S. GDP grew 33.1 percent from the second quarter, when GDP shrank 31.4 percent. Year-on-year, GDP declined 2.9 percent in the third quarter after a 9 percent fall in the second quarter.

Despite an uptick in financial markets’ outlook for inflation, the Fed only raised its forecast for inflation slightly, with the measure for personal consumption expenditures (PCE) rising to 1.8 percent in 2021, up from an expected 1.2 percent this year, and a previous forecast of 1.7 percent, and then 1.9 percent in 2022, up from an earlier forecast of 1.8 percent.

By 2023 inflation is still only seen at 2.0 percent and the Fed confirmed it aims to push inflation “moderately above 2 percent for some time so that inflation averages 2 percent over time.”
Consumer price inflation was steady at 1.2 percent in November and October.

Securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.

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