As had been widely expected, the U.S. Federal Reserve held interest rates near zero and signaled they would stay there for at least three years.
The American central bank pledged to delay tightening until the U.S. gets back to maximum employment and two per cent inflation. The Federal Open Market Committee said in a statement that it "expects to maintain an accommodative stance" until those outcomes are achieved.
The Treasuries yield curve steepened slightly Wednesday after the Federal Reserve’s decision and as investors digested the news. Ten- and 30-year yields briefly spiked to session highs of 0.70% and 1.46%t. That caused the spread between two and 10-year yields, along with the gap between five and 30-year yields, to widen slightly. Meanwhile, the U.S. dollar pared losses.
Federal Reserve Chairman Jerome Powell has stressed in recent weeks that the U.S. recovery is highly dependent on the nation’s ability to better control COVID-19, and that further fiscal stimulus is likely needed to support jobs and incomes.
The Federal Reserve again committed to using its full range of tools to support the economic recovery. The central bank repeated that it will continue buying Treasuries and mortgage-backed securities "at least at the current pace to sustain smooth market functioning." A separate statement pegged those amounts at $80 billion U.S. of Treasuries a month and $40 billion U.S. of mortgage-backed securities.
Officials see rates staying ultra-low through 2023, according to the median projection of their quarterly forecasts. In other updates to quarterly forecasts, Federal Reserve officials see a shallower economic contraction this year than before, but a slower recovery in the coming years. "The recovery has progressed more quickly than generally expected," Powell said, while cautioning that the pace of activity will likely slow and "the path ahead remains highly uncertain."
