The Federal Reserve has kept monetary policy steady with interest rates at rock bottom and no changes to its bond purchases, as chairman Jay Powell said the rise in coronavirus cases was “particularly concerning”.

In a statement on Thursday, the Federal Open Market Committee said it would hold the fed funds rate at its lowest level between 0 per cent and 0.25 per cent — and reiterated its pledge to keep it there until the pandemic-hit economy reached full employment with higher inflation. It also repeated that it was committed to using its “full range of tools” to support the economy.

“The path of the economy will depend significantly on the course of the virus,” the Fed said in its statement. “The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

In a press conference after the statement was released, Mr Powell said the rise in coronavirus cases in the US and around the world was “particularly concerning” and that downside risks to the economy were prevalent, including the further spread of the disease and the risk that financially stretched households would run through their savings.

The US central bank has been weighing growing risks to the economic recovery from new spikes in the coronavirus and waning fiscal stimulus. A protracted fight over the outcome of the presidential race could bring more uncertainty, although so far the markets have reacted well to the vote.

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The FOMC made only very minor changes to its outlook. Employment “continued to recover”, it said on Thursday, whereas in September it had “picked up”. Financial conditions were “accommodative”, it said; at the last meeting, it had said they had “improved”.

Fed officials met amid a broad rally in financial assets this week. Global equities have surged higher alongside other risk assets, while US government bonds have reversed a sell-off that had picked up steam in the run-up to the election.

Investors say this week’s slide in long-dated Treasury yields has reduced the urgency for the Fed to make adjustments to the contours of its bond-buying programme. It currently buys $80bn of Treasury securities of all maturities each month in a bid to hold down borrowing costs and support the US economy.

The Fed repeated that it plans to increase its debt holdings “at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions”.

The FOMC statement received unanimous support from its voting members. Whereas in September Robert Kaplan, the Dallas Fed president, had dissented, he joined the consensus on Thursday. Neel Kashkari, the Minneapolis Fed president who had also dissented in September, was replaced for this meeting by Mary Daly of the San Francisco Fed, who voted in favour of the policy.

Via Financial Times