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USA | Dec 16, 2021

US Fed maintains benchmark interest rate

/ Our Today

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General view of the US Federal Reserve building in Washington D.C. (Photo: The Storyteller Agency)

The US Federal Reserve has decided to maintain its benchmark interest rate at 0 and 0.25 per cent after its Federal Open Market Committee (FOMC) concluded its two-day meeting on Wednesday (December 15).

This target range is expected to be maintained until labour market conditions have reached levels consistent with the FOMC’s assessments of maximum employment. With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen.

The FOMC has also assessed that the sectors most adversely affected by the pandemic have improved in recent months, but COVID-19 cases have slowed their recovery. In recent months, job growth has been strong, and the unemployment rate has dropped significantly.

The pandemic’s supply and demand imbalances, as well as the economy’s reopening, have continued to contribute to high inflation rates. As such, overall financial conditions are still accommodating, owing in part to policy measures aimed at bolstering the economy and the supply of credit to US households and businesses.

Economic recovery dependent on COVID-19 course

The Federal Reserve reports that, “The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.”

The FOMC’s long-term aim is to maintain maximum employment and inflation at two per cent.

The FOMC has agreed to cut the monthly pace of its net asset purchases by US$20 billion for Treasury securities and US$10 billion for agency mortgage-backed securities in light of inflation developments and continued labour market strengthening. 

The FOMC has decided to expand its Treasury securities holdings by at least US$40 billion each month, and its agency mortgage-backed securities holdings by at least US$20 billion per month, starting in January.

The FOMC stated, “The committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.” 


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