Fed will keep buying bonds until there is ‘substantial progress’ in inflation, labor market goals
The Federal Reserve on Wednesday said it will keep buying bonds until it sees lower U.S. unemployment and higher inflation.
In a statement at the conclusion of its policy meeting, the central bank said it would buy at least $80 billion per month of Treasury bonds and $40 billion of agency mortgage-backed securities “until substantial forward progress has been made toward the FOMC’s maximum employment and price stability goals.”
This phrase adds new forward guidance for the market.
The Fed did not change its focus to buy more longer-dated paper as some economists had predicted.
With its policy interest rates pinned at zero, changes in asset purchases are main monetary policy tool for Fed officials.
With the new guidance, the Fed hopes that the market won’t expect an end to the bond-buying for the medium term.
Fed officials said again they expect to leave interest rates pinned near zero through the end of 2023. Only 5 of the Fed officials expect an earlier rate hike.
The latest data show the economy is slowing given the surge in COVID-19 cases across the country.
At the same time, there is a sense that things will improve as the vaccines become widely available by next summer.
Yields on 10-year Treasury
TMUBMUSD10Y,
has remained below 1% even with slightly more optimism about the longer-run outlook.
Powell will hold a press conference starting at 2:30 p.m. Eastern.
Stocks were little changed ahead of the Fed meeting with the Dow Jones Industrial Average
DJIA,
down 65 points.
