By Yasin Ebrahim
biedex.markets – Federal Reserve policymakers continued to back the status quo of near-zero rates and bond purchases to support the recovery as vaccines are rolled out across the country, according to the of the central bank’s last policy meeting released Wednesday.
At the conclusion of its previous meeting on Dec. 16, the Federal Open Market Committee kept its benchmark rate in a range of 0% to 0.25% and the pace of bond purchases at a $120 billion monthly pace.
In recent days, there has been signalling from some Fed members that the bond purchase programme could be recalibrated this year.
“I am hopeful that in fairly short order we can start to recalibrate [the $120 billion monthly bond purchases],” Atlanta Fed President Raphael Bostic said in an interview with Reuters on Monday.
Any eventual tapering of bond purchases is likely to be gradual, according to the minutes. “A number of participants noted that, once such progress had been attained, a gradual tapering of purchases could begin and the process thereafter could generally follow a sequence similar to the one implemented during the large-scale purchase program in 2013 and 2014.”
Still, the overarching narrative from the central bank members continues to be one of support as “participants agreed that the path ahead remained highly uncertain and that the economy remained far from the Committee’s longer-run goals,” the minutes showed. “In light of this assessment, all participants judged that maintaining an accommodative stance of monetary policy was essential to foster economic recovery…”
The recovery has, however, been given a shot in the arm following the $900 billion fiscal stimulus deal agreed in December.
At its meeting last month, Fed members estimated the economy would grow by 4.2% in 2021, as a bumpy first quarter is expected to be offset by a strong vaccine-led rebound in the back half of the year.
There was also broad consensus among most committee members to let inflation run above the 2% target as the potential risk of runaway inflation – led by pent-up demand amid easing virus restrictions – is unlikely as near-zero rates give the fed plenty of room to maneuver.
As upside risks to the Fed’s economic outlook, participants mentioned “the prospect that the release of pent-up demand, spurred by wider-scale vaccinations and easing of social distancing, could boost spending and bring individuals back to the labor force more quickly than currently expected as well as the possibility that fiscal policy developments could see measures that were larger than expected in amount or economic impact,” the report said.