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Economy in Brief

FOMC: Fed Again Holds Funds Rate Near Zero, Begins To Plan Asset Purchase "Tapering"
by Carol Stone, CBE  September 22, 2021

In their meeting today, the Federal Reserve's Federal Open Market Committee (FOMC) again left the federal funds rate target in the range of 0.0% to 0.25%, where it has been since March 2020. As the statement accompanying the meeting describes, "With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen."

The FOMC's statement does show caution, in light of the impact of the Delta variant and associated increases in COVID cases. Suggesting room for further economic improvement, the Committee did emphasize, "The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery."

At the same time, the FOMC statement did use stronger language to describe the recent behavior of inflation: "Inflation is elevated, largely reflecting transitory factors." At the previous meeting in late July, the corresponding statement simply said, "Inflation has risen . . . ." In line with this subtle change in wording, the combined forecasts of Fed Board members and Bank presidents rose to 4.2% for the PCE price index this year from 3.4% at their June meeting while the comparable forecasts for 2022 increased just 0.1 percentage point to 2.2% from the prior forecast of 2.1% back in June.

One other change in the policy discussion today is the prospective pace of the Fed's purchases of Treasury securities and mortgage-backed bonds (MBS). The amounts of those purchases, presently $80 billion of Treasuries and $40 billion of MBS each month can be reduced, or "tapered," as progress might continue toward the Committee's goals of maximum employment and price stability. As the statement today indicates, "If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted." At a press conference after the meeting, Chair Powell suggested that a decision on this tapering could come at the next FOMC meeting on November 2-3.

The statement issued following today's meeting can be found here.

Current Last 2020 2019 2018 2017
Federal Funds Rate Target 0.0% - 0.25% 0.0% - 0.25% 0.38% 2.17% 1.82% 1.00%
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