After a two-day meeting on Wednesday, the Federal Open Market Committee kept its prime interest rate close to zero and said it would continue to buy $ 120 billion in debt per month until then. that “further substantial progress” be made on the recovery compared to last December.
But the Fed has offered new guidance on its planned “cut” in bond purchases it introduced last year at the height of the pandemic, saying the terms for a decision would be assessed later this year.
” Since [December], the economy has progressed towards these objectives [of price stability and full employment], and the committee will continue to assess progress at future meetings, ”said the FOMC.
The FOMC meeting comes at a time of conflicting economic signals. Inflation data has been higher than expected since the last meeting of U.S. central bank officials in June, while the spread of the Delta variant in the U.S. has rekindled concerns about the job market and growth .
“With the progress of vaccinations and strong political support, economic activity and employment indicators continued to strengthen. The sectors most affected by the pandemic have improved but have not fully recovered. Inflation has increased, largely reflecting transient factors, ”the FOMC said.
The US central bank has planned to intensify discussions on reducing asset purchases at this meeting. Jay Powell, the Fed chairman, is to forge consensus on the timing, terms and details of a move to slow his support for the recovery, likely later this year or early 2022. Powell has adopted a cautious approach to reducing the Fed’s monetary policy. stimulus so far, even as more and more hawkish leaders have pushed for faster action.
Last month’s FOMC meeting was marked by major updates to economic projections from Fed officials, including forecasts of past interest rate hikes. But the spread of the Delta variant in recent weeks may require more patience on the part of the Fed, especially if it results in reduced consumer activity and the reintroduction of restrictions meant to curb transmission.
Soaring infection rates, especially among the unvaccinated, prompted U.S. health officials on Tuesday to turn around on their recommendations for masking people who have been completely stung. The Centers for Disease Control and Prevention said vaccinated people should now cover their faces when indoors in areas with substantial levels of Covid-19.
Recent fluctuations in US government bond prices partly reflect concerns about the Delta variant and the potential impact on growth. Treasuries have rallied sharply in recent weeks, although Fed officials signaled an earlier take-off in interest rates in their projections last month. Yields on the benchmark 10-year bond in turn fell, hovering around 1.26% on Wednesday.
The Fed also announced the creation of two standing facilities that would allow eligible players in domestic and foreign markets to swap Treasuries and other short-term securities for cash – tools that had been approved this week by a group of former influential policymakers as a means of securing abundant liquidity in the Treasury, especially during times of stress.
The maximum transaction size for the permanent repo facility has been set at $ 500 billion, with a minimum bid rate of 0.25%, and the list of counterparties, which currently includes the primary dealers who underwrite the sales. of Treasury debt, will expand over time. .
“These facilities will serve as safety nets for the money markets to support the effective implementation of monetary policy and the proper functioning of the market,” the Fed said in a statement.