The FOMC made no policy changes today, but it continued to acknowledge the downside risks that the pandemic poses to the economic outlook.
Uncertainties Continue to Cloud the Economic Outlook
As widely expected, the Federal Open Market Committee (FOMC) did not make any major policy changes at it policy meeting today. Specifically, the committee maintained its target range for the fed funds rate between 0.00% and 0.25% (top chart), and it kept the Fed’s monthly pace of Treasury securities and mortgage-backed securities unchanged at $80 billion and $40 billion, respectively. The decision to leave the Fed’s policy settings unchanged was unanimously backed by the ten voting members of the committee.
The statement that the FOMC released today was essentially identical to the one that followed the last policy meeting on September 16. The committee noted that “economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.” The statement went on to say “the path of the economy will depend significantly on the course of the virus.” With COVID cases spiking anew, the FOMC’s assessment that COVID “poses considerable risks to the economic outlook over the medium term” is apt.
In sum, the economy continues to expand, albeit at a slower pace than in the third quarter. However, the economic outlook is clouded by uncertainties related to the pandemic as well as the yet to be determined presidential election. Given this backdrop, the committee apparently concluded that it would be appropriate to maintain a steady course at today’s meeting and continue to watch incoming data and developments before making any policy adjustments.
Minutes of Today’s Meeting Will Be Interesting
In that regard, the minutes of the September 15-16 FOMC meeting indicated that there could potentially be some policy adjustment in the future. Specifically, some members thought that “in future meetings it would be appropriate to further assess and communicate how the Committee’s asset purchase program could best support the achievement of the Committee’s maximum employment and price-stability goals.” That is, the FOMC “seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.” With the unemployment rate currently near 8% (middle chart) and rates of consumer price inflation well below 2% (bottom chart), the FOMC is not meeting these goals, at least not at present.
Today’s statement made no explicit reference to any discussion about changes to the Fed’s asset purchase programs. But we will get more details about today’s discussion when the minutes of the meeting are released on November 25. It will be interesting to see if committee members discussed the possibility of eventually ramping up the pace of asset purchases in an efforts “to “best support the achievement of the Committee’s maximum employment and price-stability goals.”
