Fed Vows to Maintain Interest Rates and Asset Purchases

The United States Federal Reserve has decided on Wednesday to maintain interest rates unchanged, keeping the target range for the federal funds rate at 0-0.25%.

In addition, the Federal Reserve will continue to increase its holdings of Treasury 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 maximum employment and price stability goals.

The $120 billion a month asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses, the Fed noted.

The Fed reiterated its commitment to using its full range of tools to support the U.S. economy in recovery from the challenges of the Coronavirus pandemic time, promoting its maximum employment and price stability goals.

The policy statement, which was released following the second Federal Open Market Committee (FOMC) two-day meeting this year, noted that despite the tremendous economic hardship resulting from the Coronavirus pandemic, “indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak.”

The Fed expects it will be appropriate to maintain interest rates until labor market conditions have reached levels consistent with the FOMC’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

While inflation continues to run below 2%, the overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses, the statement indicated.

Once again, the Fed noted that the path of the economy will depend significantly on the course of the virus, including progress on vaccinations.

“The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”

The statement explained that the FOMC would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of its goals.

“The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”