"Keep Easing" Fed Indicates Prolonged Asset Purchases

$120 Billion Asset Purchases Until Clear Progress on Employment and Inflation Targets
Powell: "Additional Purchases If Needed"
"COVID Vaccine, Light at the End of the Tunnel"
Extension of Currency Swap Agreement with Bank of Korea

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), has indicated the end point for its monthly $120 billion asset purchase program, which was initiated to support the economy damaged by the novel coronavirus disease (COVID-19). This move is interpreted as a strong commitment by the Fed to maintain the current interest rate level of 0.00?0.25% for an extended period.

On the 16th (local time), following the conclusion of the two-day Federal Open Market Committee (FOMC) meeting, the Fed announced a statement outlining guidelines for the asset purchase program that began in June, alongside the decision to keep interest rates unchanged. This meeting marked the conclusion of the Fed’s year-long efforts to combat COVID-19 through the sudden introduction of zero interest rates and asset purchases.

In the statement, the Fed clearly stated that it will continue buying bonds until substantial progress is made in the economy. Fed Chair Jerome Powell said at the press conference, "If necessary, asset purchases could be increased," delivering a strong message to maintain interest rates at zero levels. He reiterated the policy of supporting economic recovery through bond purchases, given the limited scope of interest rate policy.

The Fed also expressed the view that asset purchases help support credit flows to households and businesses by fostering smooth market functioning and accommodative financial conditions.

While economic activity and employment continue to recover, they remain well below early-year levels; however, the Fed slightly upgraded its outlook for the U.S. economy. The Fed’s forecast for U.S. economic growth this year is -2.4%, compared to the -3.7% projection made in September. Growth rates for 2021 and 2022 are expected to be 4.2% and 3.2%, respectively.

Chair Powell also stated that COVID-19 vaccines are expected to begin showing effectiveness by the end of the second quarter of next year, saying, "The vaccine will show the light at the end of the tunnel in the first half of the year." The Associated Press reported that the Fed "expects the U.S. economy to improve next year" in this regard.

Meanwhile, the Fed announced that it has extended the currency swap agreement with South Korea until the end of September next year. A currency swap is an agreement that allows countries to deposit their own currency with a counterpart in times of emergency, such as a foreign exchange crisis, and borrow the counterpart’s currency or dollars. The currency swap size between the Fed and the Bank of Korea is $60 billion.

The Fed established currency swaps with nine countries, including South Korea, on March 19, shortly after the outbreak of COVID-19, to stabilize global financial markets.

This content was produced with the assistance of AI translation services.