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The Federal Reserve held its main interest close to zero and its asset purchases steady as it sought to maintain a massive dose of support for the US economy as it suffers through a new slowdown.
After a two-day meeting on Wednesday, its first since Joe Biden replaced Donald Trump in the White House, the Federal Open Market Committee reiterated that it would keep buying $120bn of debt until “substantial further progress” had been made in the recovery, a goal it outlined in December.
The Fed described a weakening in the recovery as the US suffers through the latest wave of coronavirus infections, which led to net job losses in December and weakness in other economic data.
“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,” the FOMC said. “Weaker demand and earlier declines in oil prices have been holding down consumer price inflation.”
The Fed said it would keep its main interest rate at its target range between 0 and 0.25 per cent until the economy reached full employment and inflation was on track to exceed 2 per cent for some time, repeating guidance it has maintained since September.
The Fed’s commitment to maintaining loose monetary policy with a higher tolerance for inflation increases and a deeper commitment to full employment had been set out by Jay Powell, the Fed chair, in August with a new statement on the central bank’s long-term policy goals. On Wednesday, the Fed decided to reaffirm its commitment to those goals by reissuing the statement.
US stocks extended earlier losses, with the S&P 500 lower by 1.9 per cent. Treasuries, meanwhile, rallied, sending the yield on the 10-year benchmark note briefly below 1 per cent. Yields fall as prices rise.
Fed policy is on hold as it weighs countervailing dynamics in the world’s largest economy, with short-term data showing a struggling recovery but the medium-term outlook improving as a result of the ramp-up of vaccinations.
Also on Wednesday, the Fed’s New York arm announced that it would scale back interventions in short-term borrowing markets, citing the “sustained smooth functioning of short-term US dollar funding markets”. It will continue to offer overnight loans in the repo market but will stop one-month repo operations on February 9.
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