Fed pledges to keep buying bonds

The Federal Reserve on Wednesday promised to keep funneling cash into financial markets 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 U.S. central bank said it would also now tie its program of monthly government bond purchases to that same goal.

"We'll be looking for employment to be substantially closer to assessments of its maximum level and inflation to be substantially closer to our 2 percent longer run goal before we start making adjustments to our purchases," Powell said during a news conference on Wednesday (December 16).

Video Transcript

JEROME POWELL: Throughout the pandemic, the outlook for the economy is extraordinarily uncertain and will depend in large part on the course of the virus. A full economic recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.

With regard to interest rates, we continue to expect it will be appropriate to maintain the current 0% to 1/4% target range for the federal funds rate until labor market conditions have reached levels consistent with the committee's assessment of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

The fiscal policy actions that have been taken thus far have made a critical difference to families, businesses, and communities across the country. Even so, the current economic downturn is the most severe of our lifetimes. It will take a while to get back to the levels of economic activity and employment that prevailed at the beginning of this year. And it may take continued support from both monetary and fiscal policy to achieve that.

We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible. Our guidance for both interest rates and asset purchases will keep monetary policy accommodative until our maximum employment and price stability goals are achieved. And that's a powerful message.

So if substantial further progress means what it says, it means we'll be looking for employment to be substantially closer to assessments of its maximum level and inflation to be substantially closer to our 2% longer run goal before we start making adjustments to our purchases.

My expectation, and I think many people have the expectation, that the second half of next year, the economy should be performing strongly. We should be getting people back to work. Businesses should be reopening and that kind of thing.

The issue is more the next four or five months, getting through the next four, five, six months. That is key. And clearly, there's going to be need for help there. And my sense and hope is that we'll be getting that.