Fed pledges to keep ultra-low rates and buy bonds until it sees substantial economic progress
The US Federal Reserve kept its base rate near zero and set standard for bond-buying program in its last policy meeting of the most eventful year 2020, in which the central bank slashed interest rates, increased bond purchases and took other extraordinary measures to curb huge negative impact of the coronavirus pandemic to the US economy.
The interest rates are likely to stay at ultra-low levels for years to come, while Fed promised to continue to buy at least $120 billion of bonds every month until there is substantial further progress in restoring full employment and hitting its 2% inflation target.
The central bank boosted its outlook for the performance of the US economy, increasing projections for GDP growth in 2021 to 4.2%, from September’s projection of 4% and lowered unemployment rate to 5% from previous 5.5% estimation.
Regarding short-term risks to the economy and the new promise of a coronavirus vaccine, Fed chief Jerome Powell said that their tools are not well suited to the most pressing needs faced by businesses and households.
The services sector businesses that involve close contacts are the most vulnerable as they are not held back by financial conditions but rather by the spread of virus, with struggling businesses being more in need of cash.
The US lawmakers work on providing a new $900 billion pandemic relief bill to bolster the economic recovery at a time when a surge in Covid-19 infections has tightened restrictive measures across the country, adding to growing signs of slowdown in the economic recovery.
The Fed expects that these measures will ensure that monetary policy will continue to provide powerful support to the economy until the recovery is complete.