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The Federal Reserve (Fed) concluded its first interest rate decision-making meeting of the year on Wednesday, announcing that interest rate policy will remain unchanged and maintain the pace of asset purchases, but warned that the economic recovery the United States will slow down.
The highlights of the latest Fed interest rate statement and President Bauer’s press conference are as follows:
Priority 1: Continuation of flexible policies
The FOMC committee voted unanimously to keep the federal benchmark interest rate within the range of 0% to 0.25%, which is the lowest level since March.
The ultra-lax monetary policy will continue to be applied in the coming months. President Bauer has repeatedly emphasized that it is too early for the Fed to consider withdrawing from the loose monetary policy stance, and the new corona virus has increased economic uncertainty.
Bauer said: “If necessary, the Fed can do more to help the economy.”
Key point 2: The road to economic recovery is long
Ball said: “We have not won this victory.”
The latest Fed statement mentioned that the current public health crisis continues to put pressure on economic activity, employment and inflation, and poses considerable risks to the economic outlook.
Bauer said the new corona virus has increased economic uncertainty. In recent months, the recovery of economic activity and employment in the United States has slowed, and weakness has been concentrated in the areas most affected by the epidemic.
Bauer said: “We will wait patiently and not react to inflationary increases in the short term. I am more concerned about not being able to fully recover than inflation.
The US unemployment rate rose from a record low of 3.4% to almost 15% and then hit 6.7% at the end of last year. Bauer said the epidemic has driven large numbers of people out of the job market, meaning the real unemployment rate is approaching 10%.
Key point 3: It’s too early to cut back on debt purchases
The Fed maintains monthly purchases of US $ 120 billion in US Treasury bonds and real estate mortgage securities (MBS). Bauer said that as the economic recovery slows, the scale of bond purchases will not slow down for a period of time. It is too early to focus on reducing overall debt purchases.
Bauer said the United States still has a long way to go before a full recovery, and the Federal Reserve will communicate carefully to ensure that when the time is right, no one will be surprised by the gradual reduction in bond purchases it has promised. .
Key 4: Vaccination
The Fed mentioned in the statement that the path of economic development will not only depend on the new coronavirus itself, but also on the progress of vaccination, and advocacy work is progressing difficult.
Ball cautioned that it would be a struggle to get enough people to get herd immunity.
Five Keys: Join Ye Lun
On Biden’s recent $ 1.9 trillion stimulus plan, Bauer said he is absolutely confident that he will have a good working relationship with new Treasury Secretary Yellen.
Key Six: Avoid Commenting On GameStop
The share price of video game maker GameStop has soared by more than 1000% since January. Ball declined to comment on single-day fluctuations in individual stocks or equity markets.
However, Bauer said the overall vulnerability to financial stability is moderate. The outlook for vaccines and expectations of further fiscal stimulus have been the main drivers of asset price rises in recent months, although monetary policy did play a role.
The Federal Reserve will evaluate a variety of financial assets for stability, including equities, leverage in the banking system, and leverage in domestic and corporate non-banking systems.
Wall Street Analysis:
Pantheon Macroeconomics chief economist Ian Shepherdson said: “The Federal Reserve believes that economic growth is slowing down, but it is not enough to trigger action.”
What will happen if the inflation rate increases to 2% or more over a longer period of time? Berenberg Capital Markets analyst Mickey Levy mentioned in an analysis that the Federal Reserve is satisfied with the current stance of monetary policy. Fiscal policy has come into the limelight and the Fed has been willing to give in, hoping how long this situation can last.
Wall Street analysts said that unless the epidemic worsens or vaccines fail, the Federal Reserve will continue to expect a good economic outlook later this year.
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