By Yasin Ebrahim
Investing.com – The Federal Reserve kept rates unchanged Wednesday, and pledged to keep the monetary spigot wide open until the economy has weathered the impact of the virus.
The Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25%.
"The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals," the Fed said in a statement.
The Fed acknowledged that economic activity had picked up somewhat in recent months, though conceded that it remained "well below" levels seen at the beginning of the year.
Fed members continued to stress that the economic outlook would depend on the path of the virus, which has spread rapidly in recent weeks and led to several states halting or rolling back reopening measures.
"The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the Fed said.
Recent economic data has validated the central bank's concerns as strength in the labor market and consumer confidence appear to be on the wane.
Still, the Federal Reserve's decisive policy action since the Covid-19 pandemic struck in March, has cushioned the blow to the economy, with many on Wall Street suggesting that gross domestic product bottomed in the second quarter of the year.
The Fed’s balance sheet ballooned to $7 trillion in June, up from $4.2 trillion in February, as the central bank rolled out emergency lending programs and stepped its bond purchasing program.
While the Fed has slowed its asset purchases - as it transitions from averting an economic crisis to paving the way for stabilization - the central bank is in no hurry to further rein in the pace of purchases.
"To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning..." the Fed added.
The Fed has been debating how it will adjust monetary policy as the economy recovers.
After the financial crisis, the central bank is widely believed to have tightened rates too soon on bets that inflation would gather steam. Inflation, however, struggled to reach the central bank's 2% target.
This time around, Fed members appear keen to avoid the same policy misstep, and have hinted that future monetary policy tightening should be tied to an economic metric such as inflation rising above 2%.
In a separate statement, the Fed said it would extend its U.S. dollar liquidity swap lines and temporary repo operations through March 31, 2021.