Highlights of the December 16, 2020 FOMC statement
- No change in weighted average maturity of portfolio
- Rates left unchanged at 0.00%-0.25%
- Interest on excess reserves % vs +0.10% expected
- Repeats that "committed to using its full range of tools to support the U.S. economy"
- Will continue to buy $80B/month in Treasuries and $40B/month in MBS
- Will continue bond buys "until substantial further progress has been made toward the Committee's maximum employment and price stability goals."
- Repeats that "The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term"
- Dot plot at end of 2023 remains at zero.
- Full text
What's new is the guidance about when the Fed will start to taper QE. We're left with the question of what is 'substantial progress'? You would have to think that's a couple points lower in unemployment and a continued rise in inflation. Clearly, it leaves the Fed plenty of wiggle room.
The Fed set up the sequencing here saying it will taper after "substantial progress" but will keep policy "accommodative" until they "achieve inflation moderately above 2 percent for some time."
The most important part is that the Fed continued to reiterate zero rates until maximum employment and inflation above 2%.
The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
The kneejerk has been a 15-20 pip rise in the US dollar and 2-3 bps in Treasuries.
I don't think the market minds inaction but there's no stronger hint at action early next year either. We'll have to see what Powell has to say at the bottom of the hour.
