Fed to keep bond purchases going until recovery sees ‘substantial progress’

The Federal Reserve on Wednesday promised to keep funneling cash into financial further into the future to fight the recession, even as policymakers’ outlook for next year improved following 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 it would also now tie its program of monthly government bond purchases to that same goal.

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 policy statement after the end of a two-day meeting.

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, and lowered the expected year-end unemployment rate from 5.5 per cent to 5 per cent.

With the economic landscape 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 to the economy in the months that it will take for the vaccine’s impact to be felt.

The language does for the first time however link its $120 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.

Fed Chair Jerome Powell is scheduled to hold a news conference to discuss the policy statement and projections at 2:30 p.m.

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