The Federal Reserve (Fed) concluded its first interest rate decision-making meeting of the year on Wednesday, announcing that the interest rate policy will remain unchanged and maintain the pace of asset purchases, but warned that the US economic recovery will slow down.
Highlights of the Fed’s latest interest rate statement and Chairman Bauer’s press conference are as follows:
Priority 1: Continuation of loose policies
The FOMC committee voted unanimously to maintain the federal benchmark interest rate within the range of 0% to 0.25%, which is the lowest level since March.
The ultra-loose monetary policy will continue to be implemented in the next few months. Chairman Bauer has repeatedly emphasized that it is too early for the Fed to consider withdrawing from the easy monetary policy stance, and the new crown virus has increased economic uncertainty.
Bauer said: “If needed, the Fed can do more to help the economy.”
Key point 2: The road to economic recovery is long
Ball said: “We have not won this victory.”
The Fed’s latest statement mentioned that the ongoing public health crisis continues to put pressure on economic activity, employment and inflation, and brings considerable risks to the economic outlook.
Bauer said the new crown virus has increased economic uncertainty. In recent months, the recovery of economic activity and employment in the United States has slowed down, and the weakness has been concentrated in the areas most severely affected by the epidemic.
Bauer said: “We will wait patiently and will not react to short-term inflationary increases. I am more worried about not being able to fully recover than inflation.”
The US unemployment rate surged from a record low of 3.4% to nearly 15%, and then reached 6.7% at the end of last year. Bauer said that the epidemic has driven a large number of people out of the labor market, which means that the actual unemployment rate is close to 10%.
Key point 3: It is too early to reduce debt purchases
Fed maintains a monthly purchase of 120 billionUSDUS Treasury and Real Estate Mortgage Securities (MBS). Ball said that as the economic recovery slows, the scale of bond purchases will not be reduced for some time. It is too early to focus on the overall reduction in debt purchases.
Bauer said that the United States still has a long way to go before a full recovery, and the Federal Reserve will communicate carefully to ensure that when the time is right, no one will be surprised by the gradual reduction in bond purchases he has promised.
Key 4: Vaccination
The Fed mentioned in the statement that the path of economic development will not only depend on the new coronavirus itself, but also on the progress of vaccination, and the promotion work is progressing difficult.
Ball warned that it would be a struggle to get enough people to get herd immunity.
Key Five: Team up with Ye Lun
Biden recently proposed 1.9 trillionUSDBauer said he is absolutely certain that he will maintain a good working relationship with the new Finance Minister Yellen.
Key Six: Avoid commenting on GameStop
The share price of video game maker GameStop has soared by more than 1,000% since January. Ball declined to comment on any single-day fluctuations in individual stocks or stock markets.
However, Bauer said the overall vulnerability of financial stability is moderate. Vaccine prospects and expectations of further fiscal stimulus have been the main drivers of asset price surges in recent months, even though monetary policy did play a role.
The Federal Reserve will evaluate a range of financial assets to assess their stability, including stocks, leverage in the banking system, and leverage in the household and corporate non-banking systems.
Wall Street analysis:
Pantheon Macroeconomics chief economist Ian Shepherdson said: “The Federal Reserve believes that economic growth is slowing, but it is not enough to trigger action.”
What happens if the inflation rate rises to 2% or above in a long period of time? Berenberg Capital Markets analyst Mickey Levy mentioned in an analysis that the Federal Reserve is satisfied with the current monetary policy stance. Fiscal policy has become the focus of attention, and the Fed has been willing to give in, waiting for how long this situation can last.
Wall Street analysts said that unless the epidemic worsens or vaccination fails, the Federal Reserve will still expect a good economic outlook later this year.
–
