The Federal Reserve said Wednesday it will continue its bond-buying stimulus “until substantial further progress has been made” toward its goals of full employment and 2% inflation, laying out a roadmap that could keep the pump-priming strategy going at least through 2022.

While Fed officials also upgraded their economic outlook, the more detailed guidance on bond purchases is partly aimed at assuring markets the stimulus campaign will persist for a prolonged period as the COVID-19 pandemic spikes across the country, likely leaving an imprint on the economy for years. The strategy is also intended to avoid a rerun of the 2013 “taper tantrum,” when Fed officials’ signals that they would wind down the bond-buying caused Treasury yields to spike.

The Fed also kept its key interest rate near zero but declined to revamp its massive bond purchases to push down long-term interest rates and bolster an economy that’s expected to slow significantly in coming months amid the COVID-19 surge. Some analysts expected the Fed to adopt the strategy and it may still do so at a future meeting.

Officials have weighed shifting the mix of purchases to bonds with longer maturities, theoretically lowering, or at least holding down, rates for mortgages, corporate loans and other assets. The impact of such a move isn’t clear because rates are already at historic lows.

Getting through next few months is key

“Getting through the next few months is key,” Fed Chair Jerome Powell said at a news conference. “We do have the ability to buy more bonds and buy longer-term bonds and we may well use that.”

But he said the service sectors most battered by the pandemic, such as restaurants and retailers, may see scant benefits.

“Those are not being held back by financial conditions but rather by the spread of the virus,” Powell said.

In a statement after a two-day meeting, the Fed said the bond purchases would be maintained at current levels of $120 billion a month “until substantial further progress has been made toward (the Fed’s) maximum employment and price stability goals.”

Previously, the central bank said the bond buying would continue “over coming months.”

The Fed reiterated that its key rate would stay near zero until the economy reaches full employment and inflation rises above the Fed’s 2% target. The Fed first made that market-friendly commitment in September. Oxford Economics thinks the Fed will begin tapering down the bond purchases in 2023 before raising its benchmark short-term rate the following year.

Fed policymakers continue to expect no rate hikes at least through 2023, according to their median forecast.

Economic outlook

The Fed also upgraded its economic outlook for this year and 2021 after growth bounced back from the coronavirus recession more rapidly than anticipated.

The Fed is buying $80 billion in Treasury bonds and $40 million in mortgage-backed securities. Policymakers initially said the purchases were aimed reviving markets for those assets that had virtually frozen early in the crisis. But they recently have acknowledged the campaign is also intended to push down long-term interest rates to spur growth. The Fed has purchased about $2.6 trillion in bonds since March, according to Oxford Economics.

Fed officials are struggling to respond to opposing economic forces. COVID-19 is spiking across the country, with cases, hospitalizations and deaths reaching new records. That has led to fresh constraints on businesses, particularly in California and the Midwest. Job growth slowed sharply in November and initial jobless claims, a rough measure of layoffs, jumped sharply to 947,000 the week ending December 5.

Also, Treasury Secretary Steve Mnuchin’s recent decision to end five of the Fed’s emergency lending programs may be putting a greater onus on the Fed to find other ways to provide a safety net for the economy. The programs are designed to ease lending to small and midsize businesses and provide funding for student, auto and credit card loans.

At the same time, lawmakers appear close to a deal on a $900 billion relief package that would aid small businesses and extend unemployment benefits for 12 million Americans that are set to expire at the end of the month.

More significantly, wide availability of a vaccine by spring offers the prospect of a substantial improvement in activity.

Some regional Fed bank presidents have said fiscal policies should play a bigger role in supporting the economy during the perilous few months ahead since they can more rapidly provide direct financial aid to households and businesses.

“The case for fiscal policy right now is surely very strong,” Powell said.

Here’s how the Fed sees:

Interest rates

Twelve Fed policymakers prefer no hikes from the near-zero federal funds rate through 2023 but five now foresee a higher rate in 2023, up from four at the September meeting.

The economy

Fed officials predict the economy will contract 2.4% this year, less than their forecast of a 3.7% drop in September. And they project growth of 4.2% in 2021, above their 4% median estimate in September.

The nation’s gross domestic product tumbled at a record 31.4% annual rate in the second quarter before surging 33.1% — also an all-time high – in the third quarter. Still, the economy has regained only about two-thirds of the output wiped out by the pandemic.

Although the economy bounced back faster than anticipated on strong consumer spending as states lifted shutdown orders, the resurgence of the outbreak is prompting renewed business restrictions and slower activity. Retail sales fell 1.1% in November, the Commerce Department said Wednesday, the second straight monthly decline.

Economists surveyed by Wolters Kluwer Blue Chip Economic Indicators project 3.8% growth in the fourth quarter. But JPMorgan Chase expect GDP to dip slightly early next year.


Unemployment is projected to hold steady at 6.7% by year’s end, down from the Fed’s 7.6% forecast in June. The jobless rate has been tumbling faster than Fed officials expected.

The economy has clawed back 12.3 million, or 56%, of the 22.2 million jobs shed in March and April as furloughed workers were called back, but that means employment is still 9.8 million jobs short of its pre-pandemic level and recovering those is likely to be far more arduous. Millions of workers have been permanently laid off and more than 100,000 small businesses have closed for good.


Annual inflation should hold steady and close out 2020 at 1.2%, the Fed said, unchanged from its previous forecast, before rising to 1.8% in 2021, slightly above its prior estimate. A core measure that strips out volatile food and energy items is projected to end the year at its current 1.4, below the prior 1.5% estimate.

Inflation picked up as airline fares, hotel rates, and car rental and insurance prices came off lows reached early in the crisis amid rising demand. Still, inflation remains well below the Fed’s 2% target, and Powell noted it has leveled off in recent.


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