WASHINGTON–As expected the Federal Reserve’s Open Markets Committee wrapped up its two days of meetings by leaving rates untouched.
There has been increasing discussion in recent months that the Fed may move sooner than planned on rates due to rising prices, especially for many consumer goods, but both the Fed and outside economists have called those price increases as temporary.
In addition, there are new concerns a new wave of the coronavirus will take some of the wind out of the sails of the economic recovery, a fact the Fed acknowledged in its statement at the conclusion of yesterday’s meeting.
“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the FOMC said. “The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
Depends on the Virus
“The path of the economy continues to depend on the course of the virus,” the statement continued. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”
The target range for the federal funds rate at 0% to .25%.
In terms of its holdings of Treasury securities, which the Fed has been purchasing by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month, the Fed said it “will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
Powell Addresses CRA & More
Meanwhile, during a press conference that followed the Fed meeting, Chairman Jerome (“Jay”) Powell addressed several issues, including:
- Powell played down a suggestion that high capital requirements for banks may be curtailing credit to lower-income households. “Strong capital requirements are essential for banks, particularly for the largest banks,” Powell said. “An undercapitalized banking system – as we’ve seen – can be a real threat to the economy and, to the greater extent, people at the lower end of the income spectrum.”
- Powell said he believes some of the tools at the Fed’s disposal, including the Community Reinvestment Act (CRA), help to assure the wide availability of credit to low- and moderate-income households. In particular, Powell referenced new CRA rules being developed now by the Fed and the other federal banking agencies, including the OCC, which as CUToday.info reported, recently withdrew revised rules it had planned.
- “We’re working on a new CRA proposal right now with the other banking agencies – and we think that it’s going to be good and will support the flow of credit to low- and moderate-income households,” Powell said.