Federal Reserve maintains target range for federal funds rate

December 16, 2020

On December 16, 2020, the Federal Reserve reiterated its commitment to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. Though the novel Corona virus continues to cause tremendous hardship across the United States and around the world, economic activities and employment have continued to recover but remain below their pre-pandemic levels. The Federal Reserve cites, “Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. 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.”

In the near term, the Federal Reserve foresees that economic activity, employment, and inflation will continue to be impacted by the ongoing public health crisis. At the same time, it poses considerable risks to the economic outlook over the medium term. The Committee seeks to maintain employment and inflation at the rate of 2 percent over the longer run, along with an accommodative stance of the monetary policy until these goals are achieved. According to the Federal Reserve, “The committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labour market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

Furthermore, the Federal Reserve plans to increase its holdings of Treasury securities by at least $80 billion and agency mortgage-backed securities by at least $40 billion per month until further progress has been made toward the Committee’s maximum employment and price stability targets. The purchases of these assets help to sustain smooth market functioning and assist with fostering accommodative financial conditions, to support the flow of credit to households and businesses. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and is prepared to adjust the stance of monetary policy if necessary.


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