Fed to extend debt purchases to boost flagging US economy

The Federal Reserve said it would keep buying at least $120bn of debt until “substantial further progress has been made” in the recovery, moving to strengthen its support for the US economy amid surging coronavirus infections. 

The new guidance from the Federal Open Market Committee came at the end of a two-day meeting during which Fed officials upgraded their economic projections but still predicted that they would keep interest rates close to zero until at least the end of 2023. 

The language on debt purchases mirrors the Fed’s pledge to keep interest rates close to zero until the economy reaches full employment and inflation is on track to exceed its 2 per cent target for some time.

But it falls short of calls for more aggressive monetary stimulus to tackle the fading recovery by lengthening the average maturity of its bond purchases, or even increasing the aggregate size.

“The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80bn per month and of agency mortgage-backed securities by at least $40bn per month until substantial further progress has been made toward the committee’s maximum employment and price stability goals,” the FOMC said.

“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” it said.

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