Federal Reserve officials held interest rates near zero and signaled they would stay there for at least three years, vowing to delay tightening until the U.S. gets back to maximum employment and 2% inflation.
The U.S. central bank “expects to maintain an accommodative stance” until those outcomes are achieved, it said in a statement Wednesday following a two-day meeting that beefed up its description of future policy.
The fresh guidance is the Fed’s first step in an evolving communication strategy, after it unveiled a new long-term policy framework last month to allow inflation to overshoot its 2% target after periods of under-performance.
Announced by Chair Jerome Powell at the Fed’s Jackson Hole conference, officials expect to refine their approach to economic projections later this year and they may also reach consensus on how to talk about their balance sheet.
“This very strong, very powerful guidance shows both our confidence and our determination,” Powell told a press conference following the meeting, though he noted it was still a bit of a work in progress. “There’s no cook book.”
The Treasuries yield curve steepened slightly Wednesday after the decision and as investors digested Powell’s remarks. Ten- and 30-year yields briefly spiked to session highs of 0.70% and 1.46%, respectively while he spoke. That caused the spread between 2- and 10-year yields, along with the gap between 5- and 30-year yields, to widen slightly.
The dollar rallied and Asian stocks dropped with U.S. and European futures as markets digested Powell’s uncertainty about the economic rebound and a lack of fresh measures to contain longer-term bond yields.