MNI POLICY: Fed to Keep Ramping Up Bond Buys, Sees No Hike

By Pedro Nicolaci da Costa

     WASHINGTON (MNI) - The Federal Reserve on Wednesday said it would keep

boosting its bond-buying program to stabilize financial markets and support an

eventual recovery from what policymakers said remains a deep slump.

     "Over coming months, the Federal Reserve will increase its holdings of

Treasury securities and agency residential and commercial mortgage-backed

securities at least at the current pace to sustain smooth market functioning,

thereby fostering effective transmission of monetary policy to broader financial

conditions," the post-meeting statement said.

     "The Federal Reserve is committed to using its full range of tools to

support the U.S. economy in this challenging time, thereby promoting its maximum

employment and price stability goals," the Fed said after leaving the official

fed funds rate in its zero to 0.25% range. The vote was unanimous. 

     The Fed's first official forecasts in six months showed just how long a

substantial rebound might take. Fed policymakers foresee keeping interest rates

around zero until at least the end of 2022, which is as far into the future as

their forecasts go.

     Officials estimate the economy will shrink 6.5% this year and the jobless

rate, currently at 13.3%, will end the year at 9.3%. They then see a rebound of

5% in 2021, not enough to make up this year's loss.

     --HEALTH CRISIS

     "The ongoing public health crisis will weigh heavily on economic activity,

employment, and inflation in the near term, and poses considerable risks to the

economic outlook over the medium term," the Fed said.

     Officials skipped the quarterly Summary of Economic Projections in March

because the economy was just slipping into a deep slump triggered by shutdowns

aimed at slowing the coronavirus pandemic, and was thus seen as too

unpredictable.

     The jobless rate now stands higher than the Great Recession peak of 10% and

consumer prices have declined in recent months, a rare occurrence that worries

central bankers.

     The Fed's dual mandate is to maintain maximum employment and stable prices,

defined as an inflation target of 2%, of which the economy has fallen well short

for more than a decade.

     The Fed did not make major changes to its long run forecasts for the

unemployment and fed funds rates, suggesting it does not yet see permanent

economic damage from the virus-led recession.

--MNI Washington Bureau; +1 202 371 2121; email: pedro.dacosta@marketnews.com

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