Economic Flash

Fed Stays Beneath the Radar with Quiet Policy Decision

by Craig Dismuke, Dudley Carter

Fed Stays Beneath the Radar with Quiet Policy Decision

The FOMC voted unanimously to keep monetary policy unchanged in its November 4-5 meeting, making only perfunctory alterations to its official communications as they stay beneath the radar.  The overnight target rate range was unchanged at 0.00-0.25% while the interest on excess reserves rate was held at 0.10%.  The Implementation Note made no changes to the current pace or mix of asset purchases.

With COVID-19 cases hitting new daily highs across the U.S., the Statement continues to highlight the associated uncertainty attending the economic outlook: “The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

Fed Chair Powell will hold a press conference at 1:30 p.m. CT.  He will likely field questions about the need for more monetary stimulus in the event that a large COVID-19 stimulus package does not materialize based on the election results.  The Fed’s next policy meeting is scheduled for December 15-16.

While the markets are no doubt observing today’s Fed’s decision, the most acute concern remains the election results.  The race for the White House remains uncertain with several races tightening and the Senate outcome is less convincing than it was Wednesday morning.  It now appears the balance of power will be 50 (R) to 48 (D+I) with both seats from Georgia still unknown.  Based on the most recent data release, incumbent Senator Perdue’s (R – GA1) vote count has now dropped to 49.985%, below the 50% threshold to avoid a January 5 runoff, with votes still being counted.  The GA2 seat is already headed to a runoff between Loeffler (R) and Warnock (D). It continues to be the case that any outcome is possible in both the Senate and Presidential races.

Federal Reserve Officials Statement

November 5, 2020

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. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. 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. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

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, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster 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; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Patrick Harker; Robert S. Kaplan; Loretta J. Mester; and Randal K. Quarles. Ms. Daly voted as an alternate member at this meeting.

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