The Fed continues to buy bonds until the economy returns to full employment

The Federal Reserve made a significant adjustment to its efforts to support the economy, while furthering its growth.

As expected, the Fed held benchmark interest rates near zero after the conclusion of its two-day meeting on Wednesday.

Investors were watching whether the Fed would outline result-based guidance, stating that it would state the necessary conditions for a reversal in the policy.

The Fed said in that regard that the Fed said it would continue to buy at least $ 120 billion worth of bonds every month “until enough progress has been made toward the committee’s maximum employment and price stability goals,” post-meeting. The statement said.

The Federal Open Market Committee said in a statement, “The purchase of these assets helps boost market functioning and domestic financial conditions.”

The committee, however, did not say that it would extend the duration of those purchases.

The Fed had already committed to raising rates as long as inflation did not exceed the 2% target, even though unemployment hit levels that were normally indicative of pressure. Changing the language around asset purchases underscores the central bank’s commitment to seeing recovery through a coronovirus-era recession.

Markets were looking at the potential turnaround FOMC is making to its asset purchasing program. Since the early days of the coronovirus epidemic, the central bank has been buying mostly short-term bonds aimed at keeping the financial markets functioning.

In recent meetings, officials have been discussing the benefits of lengthening bond terms in an effort that would be more directed at furthering the economy, exactly as it did after the 2008 financial crisis.

Increasing the duration helps reduce long-term rates, reduces borrowing costs and helps investors hungry for yield in risky assets like stocks.

Change in economic outlook

In addition to changing the language surrounding the bond-buying program, Fed officials broadened their outlook on the economy since its last forecast in September.

The average expectation for GDP is a decline of 2.4% in September, while it was negative -3.7% in September. The outlook for 2021 is now at 4.2% compared to 4% and 3.2% as against 3% in 2022.

From 2.5% to 2.4% in 2023 and from 1.9% to 1.8% in the long run, the outlook was slightly reduced from there.

The committee offered a much more optimistic view on unemployment. In 2020, the end-of-year rate is now projected to be 6.7% at present, up from 7.6% estimated for September. In 2021, the median projection is for 5.5% to 5%, while the subsequent two years are 4.2% (4.6% earlier) and 3.7% (4%).

Officials still expect the Fed to aim for 2% inflation by 2023, although it rises 0.1 percentage points to 1.4%, 1.8% and 1.9%, respectively, in 2020 and the next two years.

Elsewhere in the statement, the language originally showed no change from the November meeting.

The Fed still sees economic activity “well below” pre-epidemic levels. Overall, the committee expects the epidemic to be “economic activity, employment,
And pose considerable risk to inflation in the near term, and economic outlook in the medium term. “

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