The Federal Reserve made a key adjustment to its efforts to support the economy, while upgrading its look for growth ahead.
As expected, the Fed held benchmark interest rates near zero following the conclusion of its two-day meeting Wednesday.
One area investors were watching was whether the Fed would outline outcomes-based guidance in which it would state the conditions necessary for a reversal in policy.
The Fed delivered in that respect, saying it would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” the post-meeting statement said.
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Federal Open Market Committee added in a statement that gained unanimous approval.
The committee did not, however, say it would extend the duration of those purchases.
Markets had been looking to potential tweaks the policymaking FOMC would be making to its asset purchasing program. Since the early days of the coronavirus pandemic, the central bank has been buying mostly shorter-duration bonds in an effort largely aimed at keeping financial markets functioning.
At recent meetings, officials have been discussing the advantages of lengthening the terms of the bonds in an effort that would be more directed at pushing the economy along, much in the same way as it did in the aftermath of the 2008 financial crisis.
Extending durations helps bring down longer-term rates, lowering borrowing costs and helping push investors hungry for yield into riskier assets like stocks.
In addition to changing the language around the bond-buying program, Fed officials elevated their outlook on the economy since the last forecast in September.
The median expectation for gross domestic product in 2020 is now a decline of 2.4%, compared to the negative-3.7% in September. The outlook for 2021 is now at 4.2% compared to 4% previously and 3.2% in 2022 against 3%.
The outlook from there was reduced just slightly, to 2.4% from 2.5% in 2023 and 1.8% from 1.9% over the long run.
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