The Federal Reserve today agreed to hold interest rates close to zero and continue buying Treasury bonds to support an economy badly battered by the COVID-19 pandemic. The benchmark lending rate will remain between 0% and 0.25%, where it has been since March 15 in the early days of the pandemic.
The surge in U.S. coronavirus cases is beginning to weigh on economic activity, but the central bank pledged to “do what we can, and for as long as it takes,” to limit damage and boost growth.
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the central bank’s policy-setting Federal Open Market Committee (FOMC) said.
To support the flow of credit to households and businesses, over the coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.
According to the FOMC statement:
The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
…
The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Stay tuned to Conduit Street for more information.
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