US Fed maintains federal funds rate

December 15, 2021

On December 15, 2021, the Federal Reserve decided to maintain its benchmark interest rate at 0 and 0.25% after the Federal Open Market Committee concluded its two-day meeting. This target range is expected to be maintained until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but COVID-19 cases has 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. Overall financial conditions are still accommodating, owing in part to policy measures aimed at bolstering the economy and the supply of credit to U.S. households and businesses.

The Federal Reserve cites, “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 Committee’s long-term aim is to maintain maximum employment and inflation at 2%.

The Committee agreed to cut the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities in light of inflation developments and continued labor market strengthening. The Committee will expand its Treasury securities holdings by at least $40 billion each month, and its agency mortgage-backed securities holdings by at least $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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