WASHINGTON–Acknowledging inflation has exceeded its 2% goal “for some time,” the Federal Reserve has adjourned its December meeting here by leaving rates untouched but also announcing it will continue to reduce its monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities.
As a result, the federal funds rate will remain at 0% to 0.25%. The Fed said it 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
Eyes have been increasingly focused on the Fed and when it might make a move on rates in response to inflation, which for many consumer goods has been triple the 2% rate the Fed targets.
“Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” the Fed’s Open Market Committee said. “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 Fed said it has decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities, and that beginning in January it will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage‑backed securities by at least $20 billion per month.
Prepared to Adjust
“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 Fed said in a statement. “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.”
Analysts are forecasting the Fed will raise rates at least twice in 2022.