Source: Xinhua

The U.S. Federal Reserve on Wednesday pledged to continue its asset purchase program at least at the current pace of 120 billion U.S. dollars per month until it sees "substantial further progress" in employment and inflation.

"These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses," the Fed said in a statement after concluding the final policy meeting of 2020.

The Fed also decided to keep its benchmark interest rate unchanged at the record-low level of near zero while expecting rates to stay there at least through 2023.

"We believe the increase in our balance sheet has materially eased financial conditions and is providing substantial support to the economy," Fed Chairman Jerome Powell said at a virtual press conference Wednesday afternoon.

"If progress toward our goals were to slow, the guidance would convey our attention to increase accommodation through lower expected of the federal funds rate and higher expected path of the balance sheet," he said.

The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of U.S. treasuries and agency mortgage-backed securities to repair financial markets.

Jay H. Bryson, chief economist at Wells Fargo Securities, said the meaning of "substantial" progress in the Fed's policy statement is vague and likely did not provide the clarity that some market participants had hoped.

"In our view, the Fed will presumably continue to purchase assets for more than just the 'coming months.' In short, long-term interest rates likely will remain at extraordinarily low levels for the foreseeable future," Bryson wrote Wednesday in an analysis.

Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP, expected that "substantial progress" will be defined by the Fed as an unemployment rate near 4 percent and inflation above the 2 percent target for a yet indeterminate time.

"It reflects difficult short-term challenges and the recognition that while the return to full potential will occur soon, it will be some time before the economy returns to full employment. The Fed stands ready to provide accommodation until it does, and possibly well after," Brusuelas explained.

Diane Swonk, chief economist at Grant Thornton, a major accounting firm, noted that Powell is more concerned about near-term losses from the pandemic than other Fed officials as he underscores the need to continue to provide support for credit markets.

"Powell assured his audience that there is more the Fed can do. He mentioned only that the Fed can purchase more assets and extend the maturity of assets purchased," Swonk wrote in a blog post, adding the Fed would not hesitate to increase the size of its balance sheet to provide more support if needed.

Powell also said at the press conference that the case for fiscal policy right now is "very strong" as millions of Americans are set to lose pandemic relief benefits by the end of the year.

"The case for fiscal policy right now is very, very strong and I think that is widely understood I would say now. The details of it are entirely up to Congress," he said.

Powell noted that the issue now is getting through the next four to six months with fiscal support as he expects significant numbers of people to be vaccinated by the end of the second quarter.

"You have to think that sometime in the middle of next year you will see people feeling comfortable going out and engaging in a broader range of activities," he said.

Powell's remarks came as Democratic and Republican lawmakers have made progress in the negotiations on the long-waited next round of COVID-19 relief.

"We made major headway toward hammering out a targeted pandemic relief package that would be able to pass both chambers with bipartisan majorities," Senate Majority Leader Mitch McConnell said on the Senate floor Wednesday morning.

Economists, as well as Federal Reserve officials, have repeatedly argued that more fiscal relief is needed to sustain the economic recovery, warning of dire consequences if further fiscal support is not provided in time.