Washington, Dec 15 : The US Federal Reserve is expected to offer new guidance for its asset purchase program this week as the unabated Covid-19 resurgence across the country was posing challenges to the fragile economic recovery, economists have said.
The policy-making Federal Open Market Committee (FOMC) “will most likely place some guidance around the asset purchase program but decline to make changes to the program at this time”, Tim Duy, professor of the University of Oregon, wrote in a blog post on Monday.
“I believe they will view the current Covid-19 surge as akin to a natural disaster where the most significant impacts occur in a time horizon in which they have little influence,” Xinhua news agency quoted Duy as further saying in the post, noting Fed officials’ comments in recent weeks suggest an inclination to delay changing the asset purchase program until next spring.
Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP, believed that the Fed’s new guidance will link policy to the evolution of the pandemic and its impact on economic activity.
“We think that the committee will commit to asset purchases for the duration of the pandemic, which should keep market expectations aligned with policy intentions,” Brusuelas wrote on Monday in an analysis, adding the economy is facing a difficult period through the first quarter of 2021.
“Perhaps more important, given the continuing distress in the labour market, the case is strong for the extension in the maturity of asset purchases to dampen rates at the end of the curve,” Brusuelas argued.
A slight majority of the 47 economists surveyed by Bloomberg News earlier this month also said they expected the new guidance will be approved at the Fed’s policy meeting this week, while most of the remaining economists expect it in January or March.
The Fed cut interest rates to near zero at two unscheduled meetings in March and began purchasing massive quantities of US treasuries and agency mortgage-backed securities to repair financial markets.
Last month, it decided to keep its benchmark interest rate unchanged at the record-low level of near zero while continuing its asset purchase program at the current pace of $120 billion per month.
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