The Federal Reserve will glimpse for the first time on Wednesday at how a coronavirus vaccine has changed the US economic outlook, and whether businesses, employees and families need more central bank help until vaccinations and immunity are widespread.
The Fed’s last policy meeting in 2020 culminates in a tumultuous year in which it cut interest rates, increased bond purchases and took other extraordinary measures to stop the economic carnage of the pandemic.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
However, the landscape has changed drastically since Fed policymakers held their last two-day meeting in early November, with the rollout of one COVID-19 vaccine and another on the way, which will almost certainly improve the outlook for 2021.
In the latest quarterly projections of the economy, Fed officials at the median saw the economy grow 4% next year and the unemployment rate fell to 5.5%. Analysts expect both numbers to be upgraded.
Less clear is what the Fed is deciding to do in the meantime, including whether to focus its $ 120 billion in monthly asset purchases in a way that will lower interest rates even further over the longer term, which could help industries like housing. linked to long-term mortgage loans.
WARREN PRESSES FED CHAIRMAN TO CANCEL STUDENT LOAN DEBT
It’s a move that many in the financial markets have been asking for and expecting at some point, though Fed officials have, for the most part, said they are not ready yet.
“The arguments to act now are solid,” said Cornerstone Macro analyst Roberto Perli, adding that the choice remains “a close decision at the time of a meeting.”
The coronavirus is spreading rapidly at a rate of more than 200,000 new infections per day across the country, businesses are facing the dual challenges of renewed restrictions and more scared consumers, and job growth is slowing – compelling reasons for the Fed to take action to undertake.
On the other hand, “the promise of vaccines and the possibility of increased fiscal support … may tend to wait and see,” Perli wrote in a recent analysis.
GRASSROOTS ORGANIZATIONS URGE THE CONGRESS TO CONTINUE THE SECOND ROUND OF STIMULUS CHECKS
Congressional lawmakers are negotiating another federal stimulus package to help ailing businesses and families, but a deal has so far proved elusive.
The Fed will publish its latest policy statement and economic projections at 2:00 pm EST (1900 GMT). Fed Chairman Jerome Powell will hold a press conference half an hour later.
Analysts expect Powell and his colleagues to advise on an important aspect of monetary policy: how much longer the Fed could go on and under what conditions it could reduce its monthly purchases of government bonds, a flow of support to financial markets that is intended to stop borrowing costs for consumers and businesses.
The central bank’s Federal Funds rate – the overnight rate benchmark – has been close to zero since March, so bond purchases are now the closest instrument to influencing the economy.
CLICK HERE TO READ MORE ABOUT FOX BUSINESS
Just as interest rates are not expected to rise in the coming years, analysts expect the Fed to link any cuts in bond purchases to a substantial improvement in the economy – likely to “wind down” its asset purchases until the end of next year. or is implemented afterwards. .
(Reporting by Howard Schneider; edited by Dan Burns and Paul Simao)