Federal Open Market Committee, 27/01/2021

Federal Open Market Committee meeting, US Fed. 26-27/01/2021

No new initiatives at Fed’s first FOMC meeting of 2021  

The Federal Reserve’s Open Markets Committee met 27^th January 2021 and no new initiatives were announced. The Committee reaffirmed its commitment to keep interest rates low and to continue with its very substantial monthly asset purchase scheme. It also re-stated that very accommodative monetary policy will be maintained until inflation rises above 2% for a sustained period.

There was no mention of the extraordinary high levels of broad money growth in recent months. In December, the quantity of M3 money rose by $56b., not a particularly unusual figure. However, the annual growth rate stood at22.2%, still remarkably high as a result of last year’s fiscal and monetary stimulus measures. Jerome Powell, the Fed’s President, stated that he thought it was “likely to take some time” before the Fed’s inflation target was reached. However, it has already crept up to 1.4% and once the economy opens up, prices are likely to rise steeply, especially given the impact of President Biden’s recently-announced fiscal stimulus. This will further increase the growth in broad money in the coming months and thus push inflation higher as US consumers are already sitting on large amounts of accumulated cash which they are waiting to spend.