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What to expect from the FEDERAL reserve meeting today 27.01.2021
Fed officials are likely to acknowledge the latest signs of economic weakness, but they keep policy pending at the meeting that ends on Wednesday, choosing to wait and see if business activity improves.
The Fed set short-term interest rates near zero, launched a $ 120 billion monthly bond purchase program, and said it will keep stimulus measures until its goals of reducing the unemployment rate and achieving a 2% inflation rate are met.
Last month saw a setback, as the virus re-emerged and many countries resumed business closures. Employment and retail sales fell in December, and the number of Americans filing new claims for unemployment benefits has been on the rise since November.
However, Fed officials said they believed the setback was temporary. They believe the economy will rebound later this year as vaccines are distributed more widely and begin to bring the deadly coronavirus pandemic under control. This, in their estimation, would allow restaurants, hotels, airlines and other companies to start getting back up and running at full capacity.
Officials said rebuilding the economy completely, after the permanent loss of many companies and jobs, will take additional time.
"The economy is far from our targets," Fed Chairman Jerome Powell said earlier this month at the Princeton University Forum. He added that the time is not right now to backtrack on its policies.
In December, Congress and the White House approved new spending measures worth $ 900 billion to tackle the pandemic and its economic impacts, including sending $ 600 in checks to many Americans. Money can fill the household's savings and lead to additional consumer spending.
The Biden administration has proposed additional measures worth $ 1.9 trillion, including sending $ 1,400 checks to many families. Fed officials are actually waiting and watching to see the effects of these measures and whether their forecasts for the economy are correct.
The Fed estimates that US economic output will grow 4.2% in 2021 and the unemployment rate will drop to 5% by the end of the year from 6.7% in December. It sees the unemployment rate fall further to 4.2% by the end of 2022.
"The Federal Reserve is committed to using its full range of tools to support the US economy at this difficult time, thus promoting employment and price stability targets," Jerome Powell said in a policy statement after its December meeting.
He added that the prices will remain low and their bond purchases will continue until their targets are achieved. The bond purchases aim to lower long-term interest rates along with the short-term interest rate, which the Fed has set near zero.
The lower rates were used to encourage borrowing, spending, and investment, and to boost general economic activity. The effects are already being felt in some sectors that are particularly sensitive to borrowing costs, such as housing. Home prices in large metro areas increased 9.5% from a year earlier in November, according to the S&P CoreLogic Case-Shiller National Home Price Index. Home sales in the U.S. jumped in 2020 to its highest level in 14 years.
The rate of borrowing on mortgage at a steady rate of 30 years is around 2.75%, down from 3.6% a year ago, according to Freddie Mac, a large government-backed mortgage company.
Fed officials also expect inflation to rise in the coming months, although they are not convinced it will continue. Consumer price inflation has surpassed nearly half a percentage point from the Fed's 2% target on average since it set the target in 2012.
