Economic Flash

FOMC Decision: Fed Waits as Economy Improves “Somewhat”


by Craig Dismuke, Dudley Carter

The FOMC voted unanimously to leave monetary policy unchanged at its July 28-29 policy meeting. The target overnight rate range remains 0.00-0.25%, the IOER rate remains 0.10%, and asset purchases will continue at the current pace. They did approve the extension of their U.S. Dollar liquidity and swap lines and temporary repurchase agreement facility for foreign and international monetary authorities through March 31, 2021.

There were very few changes to the Official Statement and only calendar-mandated changes to the Implementation Note.  The Official Statement was changed to note “somewhat” improving economic conditions: “Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year.” Officials remain unconcerned about excessive inflation given the weak level of demand.

Going forward, the Statement links the economic outlook to the virus in an open-ended fashion which will provide officials with some policy latitude. According to the Statement, “the path of the economy will depend significantly on the course of the virus.”

Fed Chair Powell will hold a press conference at 1:30 p.m. CT.  If the Committee wants to lay the foundation for easing in September, it will likely be reflected in his comments.


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FOMC Official Statement

Dated: July 29, 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 coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, 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 weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Implementation Note issued July 29, 2020


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