Fed Leaves Interest Rates Near-Zero and Pledges to Keep Buying Bonds

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Federal Reserve officials left interest rates near-zero and pledged to continue making huge purchases of government-backed bonds as the central bank tries to help the United States economy weather the pandemic’s ongoing hit.

“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,” the central bank’s policy-setting Federal Open Market Committee said in its January policy statement.

Fed officials also noted that the economic outlook hinges crucially on the pandemic itself.

“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the Fed said in its statement. “The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”

The glum assessment shows that the Fed still sees the economy falling far short of its two major goals: maximum employment and price stability. Its officials are hoping that by keeping credit cheap, they can boost demand in the economy and help to set the stage for a job market recovery while also shoring up price gains, which have been chronically weak.

Besides leaving interest rates at rock-bottom, where they have been since March 2020, the Fed is buying about $120 billion in government-backed bonds each month. While most investors expect the purchases to slow eventually, Fed Chair Jerome H. Powell has been clear that the economy remains far from the central bank’s targets, that officials are not yet ready to change course, and that they will broadcast it when they do see some change coming.

“We will let the world know,” he said at a January 14 event. “We’ll do so, by the way, well in advance of active consideration of beginning a gradual taper in asset purchases.”

Fed speakers have repeatedly stressed that they are just part of the economic response team to this crisis, and that Congress — which has the power to spend and provide targeted relief — plays a central role in helping to support the economy.

President Biden has proposed a $1.9 trillion stimulus package, but his administration must prepare the fine details and steer the legislation through Congress. That could be a challenge, as some Republican lawmakers revive concerns over the nation’s fast-growing debt.

Together with congressional relief packages, the central bank’s low rates have helped the economy avoid an even deeper slump during the pandemic downturn so far, including by fueling a robust housing market. The Fed also rolled out a sweeping series of financial market rescue programs last year, several of which remain in place. Those helped to keep credit flowing during the worst of the pandemic-related market turmoil.

Some analysts have warned that the Fed’s policies are putting financial stability at risk, pushing stock prices higher and causing investors to seek out ever-sketchier assets as they try to find investments that offer higher payouts.

“While there is for now no alternative to continued monetary policy support, there are legitimate concerns around excessive risk-taking and market exuberance,” International Monetary Fund officials warned in a blog post on Wednesday. “With investors betting on persistent policy backstop, a sense of complacency appears to be permeating markets.”

Mr. Powell will likely have a chance to address questions about financial stability, inequality and other pressing issues at his 2:30 p.m. virtual news conference, which will be streamed live on the Fed’s website.