The Federal Reserve held its main interest rate close to zero and its asset purchases steady as Jay Powell warned that the battle against the economic fallout from the pandemic was far from over.

After a two-day meeting on Wednesday, its first since Joe Biden replaced Donald Trump in the White House, the Federal Open Market Committee sought to maintain a massive dose of support for the US economy.

The Fed described a weakening in the recovery as the US suffers through the latest wave of coronavirus infections, which led to net job losses in December and weakness in other economic data.

“We have not won this yet,” Mr Powell, the Fed chairman, said during the press conference following the meeting. The trajectory of the pandemic would be crucial for the US economy, he said, and achieving herd immunity through vaccinations would be a “struggle”.

In its statement, the FOMC said: “The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic.”

The Fed said it would keep its main interest rate at its target range between 0 per cent and 0.25 per cent until the economy reached full employment and inflation was on track to exceed 2 per cent for some time, repeating guidance it has maintained since September.

It also reiterated that it would keep buying $120bn of debt a month until “substantial further progress” had been made in the recovery, a goal it outlined in December.

The Fed’s commitment to maintaining loose monetary policy with a higher tolerance for inflation increases and a deeper commitment to full employment had been set out by Mr Powell in August with a statement on the central bank’s long-term policy goals. On Wednesday the Fed decided to reaffirm its commitment to those goals by reissuing the statement.

Fed policy is on hold as it weighs countervailing dynamics in the world’s largest economy, with short-term data showing a struggling recovery but the medium-term outlook improving as a result of the increase in vaccinations.

“It is a strange time because the economy is weak but the future looks really good,” said Eric Stein, chief investment officer of fixed income at Eaton Vance.

US stocks extended earlier losses as Mr Powell spoke on Wednesday. The S&P 500 had its largest drop since October, closing the day down 2.6 per cent. Treasuries, meanwhile, rallied.

Also on Wednesday, the Fed’s New York arm announced that it would scale back interventions in short-term borrowing markets, citing the “sustained smooth functioning of short-term US dollar funding markets”. It will continue to offer overnight loans in the repo market but will stop one-month repo operations after February 9.

The Fed meeting this week came as Mr Biden pushes for Congress to approve a $1.9tn fiscal stimulus plan in addition to the $900bn already enacted by Mr Trump last month.

Mr Powell said it was “appropriate” for those discussions to be occurring, saying that the US was “a long way from a full recovery” — but he would not be drawn into prescribing any particular size or policies.

He also said the Fed would not be overreacting to any temporary rise in inflation that might occur this year as the economy bounced back.

“Frankly we welcome slightly higher . . . inflation. The kind of troubling inflation people like me grew up with seems unlikely in the domestic and global context we’ve been in for some time,” he said.