Status quo expected at first Fed meeting

Photo of author

By admin

The US Central Bank (Fed) has pulled out its toolbox, and has no plans to put it away anytime soon. No change of course is expected after his first monetary meeting of the year, but his comments on the strength of the economy, inflation and the new administration will be scrutinized.

This meeting, which began Tuesday at noon and ends this Wednesday at the very end of the morning, was the first of 2021, but also since the arrival of Joe Biden at the White House just a week ago.

This new administration should mark a return to more traditional relations with the power in place for the powerful Federal Reserve, which had to fight to maintain its independence during the four years of Donald Trump’s presidency.

Especially since the Fed should find an ally with the new Treasury secretary, Janet Yellen, who is also its former president.

After Wednesday’s meeting, a press release is due at 2 p.m., ahead of President Jerome Powell’s usual press conference half an hour later.

Return of inflation?

“It would be astounding for the Fed to say anything other than what has already been said about maintaining an accommodative policy so that the economy can recover,” said JJ Kinahan, analyst for Ameritrade, also referring to possible comments on ” possible inflation ”.

A term that is making a comeback in economic vocabulary after years of absence. The mini economic boom expected in the spring, or in the summer in favor of a large vaccination of the American population, could indeed temporarily increase prices.

Inflation could pose a dilemma for the Fed, which has been saying for months that it does not consider a short-term normalization of its monetary policy.

Rates are set to stay at zero no doubt until the world’s largest economy has recovered.

Observers are, however, wondering about the $ 120 billion per month asset purchase program, which has flooded the financial markets with liquidity since mid-March, pushing stock indices to record highs despite the Covid-19 pandemic .

All eyes will therefore be on Mr. Powell’s comments at the press conference.

The $ 1.9 trillion emergency plan proposed by Joe Biden, and already widely championed by Janet Yellen, should, if passed in Congress, bring some optimism for the coming months. difficult pending wide dissemination of the vaccine against Covid-19.

Growth at a slow trot?

Jerome Powell and other Fed officials, like a majority of economists, have been warning for months about the need to inject money back into the economy, both for households and enterprises.

“Jerome Powell should support a budgetary stimulus in general, while avoiding being more specific on the amounts,” anticipates Steve Englander, economist for Standard Chartered.

If both Janet Yellen and Jerome Powell believe that additional aid is necessary, “it will put pressure on Republican senators to temper their opposition” to an envelope they consider a little too big, he said.

The president of the Fed should also be asked about the economic consequences of the deployment of vaccines, as well as the concerns related to the English variant of Covid-19, which are pushing many countries to limit travel again.

The meeting concludes on the eve of the publication of the GDP of the United States for the fourth quarter of 2020. Growth, which had recorded a historic plunge in the second quarter, then an equally historic rebound in the third, should mark time.

Leave a Comment