Course of coronavirus and progress on vaccination to determine path of economy, says Fed

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The Federal Reserve left interest rates unchanged as widely expected on Wednesday and revealed it plans to maintain its asset purchase program at the current pace, in its first monetary policy decision of the New Year. The Fed said it decided to keep the target range for the federal funds rate at zero to 0.25 % and once again said it expects to leave rates at near-zero levels until labour market conditions reach levels consistent with maximum employment and inflation is on track to moderately exceed 2 %.

The more closely watched section of the Fed’s accompanying statement revealed that the central bank plans to continue purchasing bonds at a rate of at least $120 billion per month. The statement reiterated the assertion first made last month when the Fed said it will maintain asset purchases at the current rate until substantial further progress has been made toward its goals of maximum employment and price stability.

The Fed said pace of the economic recovery has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the ongoing coronavirus pandemic. The December statement said economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.

The latest statement also referenced the rollout of coronavirus vaccines, noting the path of the economy will depend significantly on the course of the coronavirus, including progress on vaccinations. The Fed reiterated that it will continue to monitor the implications of incoming information for the economic outlook and be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of its goals.

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