JAKARTA (TheInsiderStories) -Federal Open Meeting Committee (FOMC) decided to kept the federal funds rate at zero to 0.25 percent in their latest meeting, the minutes showed on Wednesday (01/06). While, IHS Markit revises the United States (US) GDP forecast as worsening near-term pandemic, greater fiscal stimulus shift GDP pattern in 2021
“All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee’ assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time,” wrote the minutes.
Commenting on the development in US, Joel Prakken, chief economist at IHS Markit, noted that the US$900 billion stimulus package will lift incomes by nearly $2 trillion in the first quarter (1Q), but that support will dwindle quickly as the year progresses. He estimate the stimulus package will boost 1Q GDP growth by 4.5 percentage points and raise the level of GDP in 2021 by 1.3 percent.
He asserted, early-year fiscal support will provide a bridge to the second half of the year and expect a successful COVID-19 inoculation campaign to unlock pent-up consumer spending that will push GDP growth above 5 percent. In this month, the worsening COVID-19 pandemic suggested a downward revision to our forecast of GDP growth in 2021, while the passage of a significant stimulus package suggested an upward revision, he adds.
“On balance, and given the timing of the two developments, our projection of GDP growth in 2021 measured year-over-year has been revised down, from 4.3 to 4.0 percent, but as measured fourth quarter-to-4th quarter, the forecast has been revised up from 3.5 to 4.0 percent.” said Prakken.
The same noted showed by the FOMC minutes. In their monetary policy meeting, members agreed that the pandemic was causing tremendous human and economic hardship across the US and around the world. They noted that economic activity and employment had continued to recover but remained well below their levels at the beginning of the year and that weaker demand and earlier declines in oil prices had been holding down consumer price inflation.
Overall, said the policymakers, the financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses. The governors agreed that the Federal Reserve (Fed) was committed to using its full range of tools to support the US economy in this challenging time, thereby promoting its maximum employment and price stability goals.
FOMC also stated that the path of the economy would depend significantly on the course of the virus. In addition, the governors agreed that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term.
All members reaffirmed that, in accordance with the committee’ goals to achieve maximum employment and inflation at the rate of 2 percent over the longer run and with inflation running persistently below this longer-run goal, they would aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.
The policymakers are expected to maintain an accommodative stance of monetary policy until those outcomes were achieved. In addition, members agreed that it would be appropriate for the Fed to continue to increase its holdings of treasury securities by at least $80 billion per month and agency MBS by at least $40 billion per month until substantial further progress had been made toward the maximum employment and price stability goals.
They judged that these asset purchases would help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. They agreed that in assessing the appropriate stance of monetary policy, continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the central bank’ goals.
FOMC also agreed that in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
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