Economic Flash

Fed Leaves Policy Unchanged, Notes Moderation in Recovery


by Craig Dismuke, Dudley Carter

Policy Unchanged: The FOMC voted unanimously to leave policy unchanged, keeping their overnight target rate range at 0.00%-0.25% and their monthly asset purchases unchanged at $40B MBS and $80B Treasurys.

Forward Guidance: The Statement repeated the new forward guidance introduced in December’s Minutes, saying that the current pace of asset purchases will continue until “substantial further progress has been made” in achieving their dual mandate.  While this guidance remains vague, the December Minutes showed that officials plan to “clearly communicate … well in advance” of when they believe the economy is approaching this threshold.

Economic Assessment:  The Statement was adjusted to note the recent slowing in the pace of recovery, “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.”  Virus cases hit new record-highs throughout December but have since declined.  The Statement added that the pace of recovery now depends not just on the course of the virus, but also on “progress on vaccinations.”

Smooth-Functioning Markets: Because of the smooth functioning of markets, the New York Fed issued a Statement indicating they would “no longer offer regularly scheduled one-month term repo operations” after the conclusion of the February 9 offering.


FOMC Official Statement

January 27, 2021

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. 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. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and 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 percent and is on track to moderately exceed 2 percent for some time. In addition, 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. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Implementation Note issued January 27, 2021



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