Fed Maintains Monetary Stimulus
“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 FOMC said.
Federal Reserve officials left their benchmark interest rate unchanged as they flagged a moderating U.S. recovery and reiterated a pledge to use all available tools to support the economy during the coronavirus pandemic. They unanimously voted to keep the federal funds target rate in a range of zero to 0.25 percent, where it’s been since March.
The central bank’s policymaking body also repeated that it would maintain its bond-buying program at the current pace of $120 billion of purchases per month until “substantial further progress” toward its employment and inflation goals has been made. It made no changes to the composition of purchases.
“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 Federal Open Market Committee (FOMC) said in its statement Wednesday.
The revised language followed reports showing U.S. employment fell in December, for the first time since April, and retail sales tumbled for a third straight month amid resurgent coronavirus outbreaks across the country. The central bank also added a mention of vaccinations to its statement, saying the economy’s path will depend significantly not just on the coronavirus itself but also on progress with inoculations. The rollout has gotten off to a rocky start.
“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the statement said. “The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”
In addition to the annual rotation among regional Fed presidents who vote on the FOMC, its ranks were joined by Christopher Waller, who was sworn in as a governor on December 18.
The committee’s decision marked the conclusion of the Fed’s first policy meeting since Democrats took control of the Senate in early January—a development that was widely seen as brightening the outlook for the economy in 2021 by boosting the odds of additional fiscal stimulus.
The sunnier outlook has sent U.S. stocks to record levels and yields on 10-year U.S. Treasury notes above 1 percent for the first time since March, helped along by President Joe Biden’s proposed $1.9 trillion relief package, amid speculation the Fed may begin withdrawing support sooner than expected.
Some Fed officials have suggested in recent weeks that tapering of the bond-buying program could begin as soon as late 2021, though Powell said on January 14 that “now is not the time to be talking about exit.”
From: ThinkAdvisor