Watching and Waiting
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Beyond the annual rotation of voting members on the Federal Open Markets Committee (FOMC), there wasn't change in today's Fed statement. While acknowledging the moderation in some recent economic data, and that weakness is concentrated in areas most directly impacted by the pandemic (think travel, hospitality, and local businesses that rely more on in-person interaction), the Fed also noted on the flip side that there has been progress on the vaccine rollout.

Does any of that change their plan for the path forward?  Don't count on it. The Fed will continue purchasing at least $80 billion per month of Treasury securities and $40 billion per month of mortgage backed securities until "substantial further progress has been made toward the Committee's maximum employment and price stability goals."  Meanwhile, the Federal Reserve has no plans to move rates in 2021, 2022, or 2023 (which is as far out as they forecast in their most recent projection materials).

During Chair Powell's press conference, he made the point on multiple occasions that a full recovery is still some ways off. There remain more than 9 million jobs to bring back in order to reach the employment level seen pre-pandemic, and the Fed wants to see inflation consistently above 2% before they will feel mandates have been achieved. When asked about expectations regarding the vaccine rollout bringing activity back towards "normal," Chair Powell echoed a similar tone. They see progress on the vaccine front, but plan for worst case scenarios. As with inflation, they will react when they see the results in the data.

More attention will be on the Fed's next meeting in mid-March, at which point we will all have more information of the vaccine rollout progress, the impact on case numbers, and Congressional moves on additional stimulus measures. All of which will influence the pace of growth in the US economy. The March meeting will also bring with it updated Fed forecasts on employment, the economy, and the path on rates in coming years. In the meantime, the Fed remains ultra-accommodative.

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Posted on Wednesday, January 27, 2021 @ 4:21 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.