Fed sees rates near zero through 2022, says asset purchases will continue
The Federal Reserve on Wednesday said it doesn’t expect to lift short-term rates through the end of 2022. The central bank also said it will keep buying Treasurys and mortgage-backed securities, at least at the current pace.
There had been concerns among some economists and financial markets that these purchases, which the Fed says are supporting market functioning, might end as they have been tapered in recent weeks. The central bank has purchased over $2 trillion of Treasurys and MBS since mid-March. The Fed will buy $20 billion in Treasurys this week and up to $22.5 billion in mortgage bonds to stimulate the economy.
In a statement, the Fed said again it would use its “full range of tools” to support the economy.
Live blog:Fed provides update on economic outlook and policy thinking
Only two of the 17 Fed officials thought that short-term rates would inch up in 2022.
The Fed cut its benchmark interest rate to a range of 0-0.25% in mid-March as the economy went into lockdown to keep the COVID-19 coronavirus from spreading.
In the policy statement, the central bank once again pledged to keep interest rates near zero until the economy “is on track” for a full recovery. The Fed left unchanged its long-range forecasts for GDP, unemployment and PCE inflation.
There were no dissents to that stance.
The economy has shown some tentative signs of recovery but the Fed kept a cautious tone.
The May jobs report issued just a few days ago showed 2.5 million jobs were created last month after April’s sharp losses. The unemployment rate fell to 13.3%.
In the statement, the Fed noted that financial conditions had improved, in part because of the Fed’s actions. The Fed also repeated that the coronavirus pandemic poses “a considerable risk” to the outlook over the next 18 months or more.
Fed Chairman Jerome Powell will hold a press conference beginning at 2:30 p.m. Eastern. The Fed has put in place a series of programs to aid states, mid-sized companies and highly-indebted companies.
Minutes of the meeting will be released on July 1. Economists will want to see whether members discussed if the Fed would tie rate moves to specific economic conditions such as inflation returning to target. The Fed is also discussing setting caps on yields on certain Treasury securities.
After weeks of gains, U.S. equity benchmarks had retreated ahead of the Fed announcement but the Dow Jones Industrial Average
was higher after the statement’s release.
The yield on the 10-year Treasury note
was down 4 basis points to 0.790.