Fed does as expected; keeps rate near zero

 

• The Federal Open Market Committee keeps the federal funds rate target range at 0%-0.25%, as widely expected.
• The Fed's monetary policy-setting arm "expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time," consistent with previous statements it has made.
• The 10-year Treasury yield pushes up 3 basis points to 0.94%.
• Also, the Fed will continue to increase its holdings of Treasury securities by at least $80B per month and of agency mortgage-backed securities by at least $40B  per month "until substantial further progress has been made toward the committee's maximum employment and price stability goals."
• The FOMC made no changes to the composition of its bond purchase program, deciding, for the time being, not to shift them toward longer-term maturities.
• All members of the FOMC voted in favor of today's actions.
• As for any sort of outlook, the economy, of course, will depend on the course of the virus. "The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."
• No mention is made of  the recently approved COVID-19 vaccine or its expected economic impact.
• The Fed's "dot plot" projection still shows that most FOMC members expect the fed funds rate target range to stay at its current range through the end 2023.
• For 2020, the Fed board members see real GDP growth at -5.5%-+1.0%, better than the -10.0% to -4.2% range they saw in June.
• But the outlooks for 2021 and 2022 are tempered from June. They now see 2021 GDP unchanged to up 5.5% vs the prior range of 1.0%-+7.0%; the 2023 GDP view of +2.0%-+4.5% compares with their prior projection of +2.0%-+6.0%.
• For 2023, they expect GDP growth of 2.0%-4.0%.