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."
The Board of Governors of the Federal Reserve System released the following statement:
"The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. 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 path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. 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 Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's 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.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles."
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