- Fed released its FOMC statement on January 26.
- The statement includes an elevated view of the country’s economic condition.
- The Committee also reveals its long term plans and goals.
On January 26, the Federal Reserve has issued its FOMC statement on its official website. It says that economic activity and employment indicators are reinforcing. The sectors that were negatively affected by the pandemic were able to recover a lot in recent months, but again the sudden rise in Covid-19 cases is obstructing the growth.
However, significant changes can be seen in the growth of “job gains”, the decline of “the unemployment rate”, and progress on vaccinations can also be seen. Still, there is a continuous inflation expansion as the pandemic has brought an imbalance in supply and demand. The reopening of the economy is also contributing to this. The Fed is expecting that the ease of supply constraints may support gains in the economy and employment, which may help in reducing inflation. Although, there’s still a good chance that the new variants of the virus may threaten the country’s economy.
“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.”, says Fed.
The Committee’s long term plan includes accomplishing expansion of employment and inflation at the rate of 2 per cent. To enable these, Fed has taken a decision to “keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”
It has also decided to lessen the monthly speed of its net asset purchases, hoping to bring them to an end in early March. The Committee also has plans to surge its holdings of Treasury securities by a minimum of $20 billion per month and agency mortgage-backed securities by at least $10 billion per month.
The Fed’s continuous purchases and holdings will encourage continued “smooth market functioning” and “accommodative financial conditions”. This will, in return, support the progression of credit to families and corporations.
The Committee will also continue to keep an eye on the consequences of the incoming data for the economic viewpoint while evaluating the proper position of monetary policy. This will be done to keep the Committee prepared to make any changes in the policy position if such risk emerges that can delay the process of achieving the goals of the Committee.
The statement also mentions that Fed will assess “a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”