Fed keeps policy rated unchanged amidst a spike in US unemployment
28 January 2021
The US Federal Reserve at its policy meeting on Wednesday decided to keep the target range for the federal funds rate unchanged at 0 to 0.25 per cent, in view of the decline in overall employment levels and the still unabated Corona-19 crisis.
The Federal Open Market Committee (FOMC) said the Fed will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals.
The pandemic has adversely affected the labour market, laying millions jobless and Fed plans to keep its accommodative monetary policy until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 per cent and is on track to moderately exceed 2 per cent for some time.
The FOMC said these asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
Fed chief Jerome H Powell said the recovery has a long way to go, especially with unemployment close to 10 per cent, including those who have left the workforce.
While overall financial conditions remained accommodative, Fed noted a moderation in the pace of the recovery in economic activity and employment in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation.
The FOMD said it would continue to monitor the implications of incoming information for the economic outlook and adjust the stance of monetary policy according to emerging risks to the attainment of full employment goals.
Much will depend on the policy initiatives of the Joe Biden administration and the readings on public health, labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
Doubts about the ultimate size of Biden's stimulus and infrastructure packages should get cleared up and the economy will look much different when the Federal Reserve next meets in mid-March. New coronavirus cases and Covid hospitalisations have begun to tail off from their recent peak.