November FOMC Follow-Up

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  • The FOMC unanimously voted to keep the Fed Funds target rate unchanged within the 0.00% to 0.25% range.
  • Market implied probabilities indicate investors are pricing in a reasonable likelihood of at least one rate increase by the middle of next year and a strong probability of at least two 25 basis point increases by the end of next year.
  • Powell noted in his comments during the press conference that decision-making pertaining to the Fed Funds rate and tapering are independent decisions and that there is “a more stringent test” for raising the Fed Funds rate. He also stated that it would be premature to raise the rate at this time.

Monetary Policy Implementation

  • The FOMC announced that the Fed will begin tapering asset purchases at a rate of $15 billion per month, with tapering set to begin later this month.
  • The statement noted the decision was taken “In light of the substantial further progress the economy has made toward the Committee’s goals.”
  • Tapering will begin with a pro rata reduction of $10 billion from monthly Treasury purchases and $5 billion from mortgage purchases. The statement indicated there will be an identical reduction in December and added that “similar reductions in the pace of net asset purchases will likely be appropriate each month.” The Fed indicated it is prepared to adjust the rate of tapering as needed.
  • This pace of tapering will put the Fed on target to end quantitative easing around the middle of 2022, in line with previously communicated expectations.

Economic Conditions

  • The FOMC statement provided new language regarding inflation, noting the impact of “supply and demand imbalances related to the pandemic and the reopening of the economy.”
  • Chairman Powell acknowledged that inflation has been higher than expected by both the Fed and other economic forecasters and noted that elevated inflation is expected to last “well into next year.”
  • Powell stressed the importance of getting past the impact of Covid on the economy to see the true state of the labor market and inflation.


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