The US Federal Reserve has promised to keep funneling cash into financial markets to fight recession even as the outlook for next year improves with the initial rollout of a coronavirus vaccine.
Repeating a pledge to keep its benchmark overnight interest rate near zero until an economic recovery is complete, the US central bank said on Wednesday it would also now tie its program of monthly government bond purchases to that same goal.
“Together, these measures will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete,” chair Jerome Powell said after the the bank’s latest policy meeting.
The bond purchases would continue “until substantial further progress has been made toward the committee’s maximum employment and price stability goals,” the Fed said in a unanimous policy statement.
It was the more incremental step of the options the Fed was weighing, taken as policymakers boosted their outlook for economic growth next year to 4.2 per cent from 4 per cent at the median.
They lowered the expected year-end unemployment rate to 5 per cent from 5.5 per cent.
With the economic landscape in 2021 brightening, the Fed did not change the type or pace of assets being purchased, a step many analysts had expected as a way for it to provide more immediate help.
The language does for the first time however link its $US120 billion ($A160 billion) in monthly purchases of US Treasury bonds and government-backed securities to a set of economic conditions.
It had previously pledged to make those purchases only “over coming months” with no firm guidance about when the recession-fighting program might stop.
“We had expected perhaps an extension of the maturities of the asset purchases. They didn’t do that,” said Kathy Bostjancic, chief financial economist at Oxford Economics.
“But this guidance, forward guidance on QE (quantitative easing) is pretty powerful … that gives some clarity, which is good.”
US stocks, up slightly ahead of the Fed’s statement, pared their gains and were mixed in mid-afternoon trading.
Benchmark US Treasury security yields ticked higher and the dollar edged up against major trading partner currencies.
The conclusion of the Fed’s last policy meeting of 2020 capped a tumultuous year in which it slashed interest rates, ramped up bond purchases and took other extraordinary measures to stem the carnage.
Fed officials, however, have recently urged the federal government to step in with more pandemic-related relief to bolster economic recovery at a time when a surge in COVID-19 infections has led to more lockdowns and restrictions on businesses across the country.
US retail sales fell more than expected in November, the Commerce Department reported on Wednesday, data that added to growing signs of a recovery slowdown.
Powell told reporters despite some progress, the pace of improvement is slowing and the share of people either working or looking for work remains below pre-pandemic levels.