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Fed vows to continue bond-buying stimulus until

Fed vows to continue bond-buying stimulus until


Fed vows to continue bond-buying stimulus until

Paul Davidson
Coronavirus fears could benefit consumers with low interest ratesCoronavirus prompted the Federal Reserve to lower interest rates and bond yield rates to a record low. This has created benefits for many consumers.USA TODAY, WochitThe Federal Reserve said Wednesday it will continue its bond-buying stimulus “until substantial further progress has been made” toward its goals of full employment and 2% inflation, laying out a roadmap that could keep the pump-priming strategy going at least through 2022.While Fed officials also upgraded their economic outlook, the more detailed guidance on bond purchases is partly aimed at assuring markets the stimulus campaign will persist for an prolonged period as the economy faces a perilous period the next few months. The strategy is also intended to avoid a rerun of the 2013 “taper tantrum,” when Fed officials’ signals that they would wind down the bond-buying caused Treasury yields to spike.The Fed also kept its key interest rate near zero but declined to revamp its massive bond purchases to push down long-term interest rates and bolster an economy that’s expected to slow significantly amid a COVID-19 surge in coming months. Some analysts expected the Fed to adopt the strategy and it may still do so at a future meeting.Officials have weighed shifting the mix of purchases to bonds with longer maturities, theoretically lowering rates, or at least holding down,  for mortgages, corporate loans and other assets. The impact of such a move isn’t clear because rates are already at historic lows. In a statement after a two-day meeting, the Fed said the bond purchases would be maintained “until substantial further progress has ben made toward (the Fed’s) maximum employment and price stability goals.” Previously, the central bank said the bond buying would continue “overcoming months.”The Fed reiterated that its key rate would stay near zero until the economy reaches full employment and inflation rises above the Fed’s 2% target. The Fed first made that market friendly commitment September, and economists say it likely assures near-zero rates until 2023 or 2024.Fed policymakers continue to expect no rate hikes at least through 2023, according to their median forecast.The Fed also upgraded its economic outlook for this year and 2021 after growth bounced back from the coronavirus recession more rapidly than anticipated.The Fed is buying $80 billion in Treasury bonds and $40 million in mortgage-backed securities. Fed policymakers initially said the purchases were aimed reviving markets for those assets that had virtually frozen early in the crisis. But they recently have acknowledged the campaign is also intended to push down long-term interest rates to spur growth. The Fed has purchased about $2.6 trillion in bonds since March, according to Oxford Economics.Fed officials are struggling to respond to opposing economic forces.  COVID-19 is spiking across the country, with cases, hospitalizations and deaths reaching new records. That has led to fresh constraints on businesses, particularly in California and the Midwest. Job growth slowed sharply in November and initial jobless claims, a rough measure of layoffs, jumped sharply to 947,000 the week ending December 5.Also, Treasury Secretary Steve Mnuchin’s recent decision to end five of the Fed’s emergency lending programs may be putting a greater onus on the Fed to find other ways to provide a safety net for the economy. The programs are designed to ease lending to small and midsize businesses and provide funding for student, auto and credit card loans.  At the same time, lawmakers appear close to a deal on a $900 billion relief package that would aid small businesses and extend unemployment benefits for 12 million Americans that are set to expire at the end of the month.More significantly, wide availability of a vaccine by spring offers the prospect of a substantial improvement in activity.Some regional Fed bank presidents have said fiscal policies should play a bigger role in supporting the economy during the perilous few months ahead since they can more rapidly provide direct financial aid to households and businesses.

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