FOMC Leaves Rates and Purchases Unchanged, Powell Opines on Inflation

The Fed had its final meeting in the most active year for Central Banking since the Global Financial Crisis. The headline is that Fed members continue to project no upward change in rates for at least 3 years and will continue asset purchases at the same levels for the foreseeable future. In other words, no fireworks. The tone and outcome were nonetheless positive for markets in our view.

Some had speculated that the Fed might engage in further accommodative action like buying longer-dated debt as it did about a decade ago. Chairman Powell responded to questions about why they decided not to do this by explaining that long-term interest rates are already low. He said monetary policy, particularly since we can see through to mass vaccinations, is not the most appropriate or effective tool to respond to short-term economic challenges. He again resolutely implored fiscal authorities to act quickly as, in his view, assistance from them will be the most effective in getting assistance to struggling businesses and families. It is ironic and unfortunate that disputes over the future of lending programs have been thrust directly into that debate. He noted that monetary policy is not a good tool to aid industries that are struggling due to lockdowns and changed consumer behavior from the virus.

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