The Federal Reserve made a major adjustment in its efforts to support the economy, while improving its outlook for future growth.
As expected, the Fed kept benchmark interest rates close to zero after the close of its two-day Wednesday.
Investors looked to see if the Fed would provide results-based guidelines outlining the conditions necessary for a policy turnaround.
The Fed delivered in that regard, saying it would continue to buy at least $ 120 billion worth of bonds each month “until substantial further progress is made toward maximum employment and price stability targets,” the statement said after the meeting. .
“These asset purchases help promote smooth market forces and accommodative financial conditions, supporting credit flow to households and businesses,” the Federal Open Market Committee added in a unanimously approved statement.
However, the commission did not say it would extend the duration of those purchases.
The Fed had already pledged not to raise rates until inflation exceeds its 2% target, even if unemployment falls to levels that would normally indicate price pressure. Changing the language around asset purchases underscores the central bank’s commitment to see the recovery after the coronavirus slump.
Markets had been looking at possible adjustments FOMC’s policymaking would make to its asset purchase program. Since the early days of the coronavirus pandemic, the central bank has mainly been buying shorter-maturity bonds in an effort to keep financial markets functioning properly.
At recent meetings, officials have discussed the benefits of extending the terms of the bonds in an effort that would be more focused on boosting the economy, in the same way as in the wake of the 2008 financial crisis.
Extending maturities helps lower longer-term interest rates, lower borrowing costs, and push investors looking for returns to riskier assets such as stocks.
Changes in the economic outlook
In addition to changing the language around the bond buying program, Fed officials have been raising their views of the economy since the last forecast in September.
The median expectation for gross domestic product in 2020 is now down 2.4% from the negative 3.7% in September. The outlook for 2021 is now 4.2% compared to 4% previously and 3.2% in 2022 against 3%.
The outlook from there was only slightly lowered to 2.4% from 2.5% in 2023 and 1.8% from 1.9% in the long run.
The committee also offered a significantly more optimistic view of unemployment. In 2020, the year-end percentage is now estimated at the current 6.7%, compared to the 7.6% expected in September. In 2021, the median projection is 5%, of 5.5%, while the following two years are 4.2% (previously 4.6%) and 3.7% (4%).
Officials still expect to fall short of the Fed’s 2% inflation target by 2023, although in 2020 and the next two years a 0.1 percentage point rise in the outlook to 1.4%, 1.8% and 1.9% was on display.
The language elsewhere in the statement showed essentially no change from the November meeting.
The Fed continues to see a recovery in economic activity, but “well below” pre-pandemic levels. Overall, the committee expects the pandemic “will continue to weigh on economic activity, employment,
and inflation in the short term, and poses significant risks to the medium-term economic outlook. “
This is the latest news. Check here for updates.