The Daily Update: January's FOMC Minutes

The minutes from January’s FOMC meeting were released last night with members reaffirming that there is no hurry to change course from the current accommodative monetary policy, meaning holding borrowing rates at close to zero and continuing the USD120bn of asset purchases each month.

The minutes did note that over the medium term ‘participants expected strong growth in employment, driven by continued progress on vaccinations and an associated rebound of economic activity and of consumer and business confidence, as well as accommodative fiscal and monetary policy’. However, they did caution that the economy was ‘far from achieving the Committee’s broad-based and inclusive goal of maximum employment and that even with a brisk pace of improvement in the labour market’ adding that achieving this goal ‘would take some time’.

With regards to inflation, reiteration of members recent comments was the name of the game. ‘Many participants stressed the importance of distinguishing between such one-time changes in relative prices and changes in the underlying trend for inflation, noting that changes in relative prices could temporarily raise measured inflation but would be unlikely to have a lasting effect’ the minutes noted, adding ‘Some participants further observed that 12-month PCE inflation was likely to move somewhat above 2 percent for a brief period in the spring as the unusually low monthly observations from last spring roll out of the 12-month calculation’.

In fact, in Powell's post-meeting press conference his views on short- and medium-term inflation were crystal clear. ‘There’s also the possibility—indeed, it’s in some forecasts—that as the economy fully reopens, there’ll be a burst of spending, and—because people will be enthusiastic that the pandemic is over, potentially, and that that could also create some upward pressure on inflation. Now, again, we would see that as something likely to be transient and not to be very large. In both cases, we don’t see those as either lasting or particularly large’ adding ‘we’re going to be patient. Expect us to wait and see and not react if we see small and what we would review—we would view as very likely to be transient effects on inflation’.