U.S. FOMC Statement (January 27, 2021)

FOMC Cements Accommodative Monetary Policy Stance

• The members of the Federal Reserve Open Market Committee (FOMC) voted to maintain the current monetary policy stance, which includes keeping the policy rate at the current 0% to 0.25% range. 
• The statement reaffirmed its commitment to purchasing at least $80 billion Treasuries and $40 billion agency mortgage-back securities per month. 
• The policy statement referenced the impact of rising covid-19 infection rates, noting that the "pace of the recovery in economic activity and employment has moderated in recent months".
• Looking forward, the statement added that "progress on vaccination" rates will be immensely important in determining the path of the economic recovery. 
• All of the members of the FOMC voted in favor of the decision. 

Key Implications

• Over the last few weeks, economic activity has slowed alongside elevated Covid-19 infection rates. This has resulted in greater job losses and a slowdown in consumer spending. With this setback, the Fed is in no rush to step off the accelerator. 
• Though the Fed has acknowledged the recent slowdown, the future still looks bright given the combination of vaccine deployment and President Biden's proposed fiscal spending package. 
• This economic rebound narrative is pushing up market-based measures of expectations for future inflation. This rise means that market participants believe that the Fed will be successful in steering inflation higher. Though the Fed will need to see inflation expectations translate into higher actual inflation, we'd argue that the foundation is in place for it to meet its objectives.

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