January 26-27th FOMC Minutes

February 17, 2021

At the U.S. Federal Open Market Committee’s first monetary policy review of 2021, officials voted unanimously to continue to target the federal funds rate at 0-0.25% and to purchase a total of $120 billion of bonds per month ($80 billion of Treasuries and $40 billion of agency MBS). Minutes from that meeting released today found officials quite satisfied with their outcome-based guidance to future policy, which they believe investors well understand. They expect inflation as measured by the deflator of personal consumption expenditures to exceed 2.0% during this spring due to base effects but to end this year somewhat below that level and not to return to that threshold until 2023. The inflation goal is to overshoot 2.0% for some time in subsequent years, compensating for several years of undershooting and allowing time for labor market conditions, which currently embody considerable slack, to return to a state consistent with “maximum employment.” Largely due to several downside risks associated with the Covid pandemic, prices risks relative to their baseline forecast are considered to be skewed toward a lower- rather than higher-than-assumed trajectory.

Bottom line: In spite of some higher-than-forecast U.S. and global price data reported in lately and the uneasiness expressed by some market analysts that the Fed stance is seeding a stock market bubble, Fed officials will look through the transient nature of higher inflation in the near term and are likely to retain their currently very accommodative policy not for just a couple more quarter but rather for several more years.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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