Fed to continue Open-Ended Stimulus to Spur Recovery; Near Zero Interest Rates for 3 Years Likely

From the Wall Street Journal -

The Fed has been buying $80 billion in Treasurys and $40 billion in mortgage bonds a month since June while pledging to maintain those purchases “over coming months.” On Wednesday, the central bank stated those purchases would continue “until substantial further progress has been made” toward broader employment and inflation goals. Officials don’t expect to reach those goals for years, according to projections they released Wednesday.

The projections show most officials thought they would hold short-term rates near zero for least three more years despite a somewhat more optimistic economic outlook than they had in September, before drugmakers had developed highly effective Covid-19 vaccines.

Many officials projected such low rates would be needed even though they projected inflation would be at the Fed’s 2% target and unemployment would fall below 4% by the end of 2023. Those projections reflect a change in the central bank’s framework adopted this summer that took a more relaxed view toward inflation.

Mr. Powell said the central bank expected to see some one-time increases in prices of goods and services due to a rebound in activity from the pandemic next year but that they were unlikely by themselves to create self-sustaining inflationary forces.

“It’s not going to be easy to have inflation move up,” said Mr. Powell. “We’re honest with ourselves and with you in the [projections] that even with the very high level of accommodation that we’re providing…it will take some time.

What it most likely means:

With low interest rates and the rapid creation of money, barring a black swan event the stock market will continue doing well - until the inevitable rise in interest rates.

Get ready for inflation in a couple of years - with a Federal Reserve "more relaxed view toward inflation" expect it will be more then the 2% they keep mentioning.