Key Points

  • The Fed left rates unchanged and reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities.

  • There was no mention in the statement of inflation targeting, new forward guidance or yield curve control; but heavy emphasis on the “course of the virus.”

  • The Fed reiterated that it will use its “full range of tools” to support the economy.

In a unanimous vote, the Federal Open Market Committee (FOMC) left the benchmark federal funds rate near zero and reiterated its commitment to using all necessary tools to underpin the U.S. economy amid an inconsistent and at times faltering recovery from the COVID-19 pandemic. In the FOMC’s statement, it said the “path of the economy will depend significantly on the course of the virus;” and that economic activity and employment “have picked up somewhat in recent months but remain well below their levels at the beginning of the year.”

The statement reiterated that the pandemic “poses considerable risks to the economic outlook over the medium term” and that the federal funds rate would remain near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” The Fed is closely monitoring the virus noting “the path of the economy will depend significantly on the course of the virus.” That comment was directly related to the sharp reversal in some of the highest-frequency economic indicators since virus cases began to surge again last month.

In terms of the Federal Reserve’s balance sheet—shown below—the FOMC reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities “at least at the current pace” in the near future. Separately, the Fed said it extended its temporary repurchase agreement facility for foreign and international monetary authorities, and its dollar liquidity swap lines, through the end of next March.