No fireworks were expected and none were delivered in tonight’s FOMC press statement. The Federal Reserve left its monetary policy instruments unchanged but indicated the central bank will do everything they can to promote economic recovery and thereby the Fed’s maximum employment and price stability goals.
Fed Chair Jerome Powell stated at the start of the press conference that widespread vaccine distribution “would enable us to put the pandemic behind us and return to more normal economic activities”, meaning that progress on the vaccination programmes will be key in determining the path of economic growth, while the near term risks of the ongoing health crisis remain evident. This was repeated throughout the press conference, with Powell stating that the return to maximum employment hinges on the reopening of the service sector, which continues to weigh on employment data until the economy can be fully reopened.
After earlier commentary by Fed officials caused some market jitters when they suggested QE tapering could come as early as year-end, Powell poured cold water on the taper talks by his colleagues and stated “the whole focus on exit is premature”.
Despite the softening in activity since the last FOMC meeting, the Fed doesn’t deem this drastic enough to warrant a policy change at this point until the pandemic is behind us, signalling clearly that it is too early to talk about tapering asset purchases.
The US dollar traded in narrow ranges throughout the entire presser as Powell stated nothing markets did not already know, but with taper terrors out of the way now, dollar traders can expect policy to remain highly accommodative at least until vaccine programmes have progressed far enough to start reopening the economy and rebuilding the US labour market. Until then, speculation around QE tapering is likely to remain muted, pushing the focus back onto vaccine distribution progress and US fiscal stimulus.
US dollar trades in narrow ranges as FOMC decision holds no surprises
Author: Ima Sammani, FX Market Analyst