Fed Sets Cautious Tone As Economic Momentum Slowly Grinds To A Halt

(JustPatriots)- The Federal Reserve announced no major changes at its latest meeting. Chair Jerome Powell said the Fed isn’t anywhere close to stopping their massive support efforts, as the economy is starting to grind to a halt.

The central bank left the benchmark interest rate at near zero, and officials flagged a moderating recovery in the United States. Officials also said they’d maintain their bond-buying program at its current pace, which is $120 billion in purchases every month. They said they’d continue doing so until “substantial further progress” in both their inflation and employment goals.

No other changes were made to the Fed’s composition of those purchases, either.

At a press conference on Wednesday, Powell said it’d take “some time” to achieve that threshold for alerting asset purchases. In a way, he was signaling that the Fed isn’t close to slowing down on the purchases.

As he said:

“The whole focus on exit is premature.”

Powell said America is still a far way away from what would be a full recovery. When the time finally does come to taper off purchases, Powell said the Fed would communicate that clearly in plenty of time. He said no one would be surprised when the Fed dial back the purchasing, as plenty of notice would be given.

In response to Powell’s announcements, stocks fell sharply on Wednesday, marking the biggest single-day drop since October of last year. The markets seemed to react to the Fed’s outlook that a full recovery isn’t on the horizon.

Powell held his press conference after a meeting of the Federal Open Market Committee. The committee then issued a statement that said:

“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic.”

Recent statistics show that employment in the United States fell in December, marking the first time it did so since last April. For the third month in a row, retail sales dropped precipitously, too, as the coronavirus outbreak is accelerating in many parts of the country.

This is also happening as demand for COVID-19 vaccines is far outpacing supply across the country. Still, Powell said the expanding availability of the vaccine is a ground for optimism. He even said that, “several developments point to an improved outlook for later this year.”

Much of how the economy will progress throughout 2021 depends on how the vaccine rollout goes, and whether the vaccine proves to give long-term immunity. As the FOMC said in its statement:

“The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment and inflation, and poses considerable risks to the economic outlook.”

That being said, many economists still see a positive outlook for later in the year. As economists for Bloomberg said in a statement:

“Barring a deterioration in the public health situation or a botched vaccination rollout, policy makers continue to see decent economic prospects later this year.”