Fed to Maintain Bond Buys Until Economy Improves

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The Federal Reserve strengthened its commitment to support the U.S. economy, promising to maintain its massive asset purchase program until it sees “substantial further progress” in employment and inflation.

At their final meeting of a tumultuous year, policymakers led by Chairman Jerome Powell on Dec. 16 voted to maintain monthly bond purchases of at least $120 billion and scrapped their previous pledge to keep buying “over coming months.”

They didn’t announce changes to the composition of purchases in their statement, declining to shift them toward longer-term maturities as some economists had recommended.

Powell called the new language on asset purchases “powerful,” but declined to specifically define what inflation and unemployment rates would trigger a future change in the buying campaign.

“I can’t give you an exact set of numbers,” he told reporters during a press conference to explain the decision. He added the point at which the economy might meet these conditions was “some ways off.”

The Fed meeting came as lawmakers on Capitol Hill tried to wrap up an agreement on a new stimulus after months of deadlock, with both fiscal and monetary policy poised to help continue cushioning an increasingly shaky economy during the wait for widespread vaccine distribution.

Ten-year Treasury yields rose after the statement was released to trade at about 0.94% — up from about 0.91% just before. Stocks were mixed.

The Federal Open Market Committee said “economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.” Its quarterly projections for the economy showed some improvement compared with September.

The committee unanimously kept the federal funds target rate in a range of zero to 0.25%, where it’s been since March, and a majority of Fed officials continued to forecast that their benchmark lending rate would be held near zero at least through 2023.

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