Fed to maintain bond buys until 'substantial' economy gains seen

At their final meeting of a tumultuous year, policymakers led by Chair Jerome Powell voted to maintain monthly bond purchases of at least $120 billion, according to a statement Wednesday, as many market analysts had expected. Policymakers made no changes to the composition of purchases, declining to shift them toward longer-term maturities.

"The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals," the Federal Open Market Committee said.

The Fed meeting came as lawmakers on Capitol Hill tried to wrap up an agreement on new stimulus after months of deadlock, with both fiscal and monetary policy poised to help continue cushioning an increasingly shaky economy during the wait for widespread vaccine distribution.

Ten year Treasury yields rose after the statement was released to trade at about 0.94% - up from about 0.91% just before. Stocks were mixed.

The FOMC on Wednesday said "economic activity and employment have continued to recover but remain well below their levels at the beginning of the year."

The committee unanimously kept the federal funds target rate in a range of zero to 0.25%, where it's been since March, and a majority of Fed officials continued to forecast that their benchmark lending rate would be held near zero at least through 2023.

Powell is scheduled to hold a video press conference at 2:30 p.m. Washington time.

The FOMC "expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time," policy makers said, repeating language from their November statement.

The central bank's meeting builds on their earlier response to the coronavirus pandemic, in which officials cut interest rates to near zero while unleashing massive bond purchases and a multitude of emergency lending programs.

U.S. central bankers are still far away from their goals, and Powell has repeatedly called on Congress to pass another round of fiscal stimulus to help the economy through the winter as the pandemic continues to rage. The unemployment rate stood at 6.7% in November, while inflation remains below 2%.

Even so, financial markets have been buoyed by investors counting on steady growth next year as more people are vaccinated, as well as pent-up consumer demand, low interest rates and maybe another round of fiscal stimulus. The S&P 500 index set a record high earlier this month, while yield spreads on corporate bonds are trading around pre-pandemic lows.

Despite the ebullience in markets, non-farm payroll growth slowed to 245,000 in November -- less than half the gain in October -- and employment is still down roughly 10 million compared with before the virus struck. U.S. retail sales dropped by more than forecast in November and the prior month was revised to a decline, the first drops since March and April, data showed earlier Wednesday.