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The Federal Reserve concluded its January meeting this past Wednesday. They kept short-term rates where they are right now, but that much was expected. The difference is in the details.

When it comes to those details, not much has changed except that there’s an acknowledgment that COVID-19 has seen a bit of a resurgence since the last time the Federal Open Market Committee met in December. The Fed has chosen to maintain its current policy of making money easier to access.

If you’re in the market for mortgage, the upshot here is that if you’re in the market for a refinance or a new home, you should consider applying now while rates remain low.

I’ve broken down the statement below. My analysis is in bold.


The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

This paragraph is becoming commonplace. The Committee is willing to support the economy in any way it can in times of turmoil so that prices remain stable and unemployment returns to sustained low levels.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. 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.

There’s a slight change in language here. Previous statements have referred to a continuing recovery of the economy. In this statement, the Fed acknowledges that the pace of this recovery has slowed somewhat, with those industries that have been impacted by the virus most significantly having the most issues.

The Committee notes that inflation remains low and point to low oil prices in particular. The number of people driving any significant distance has really fallen off because people are working from home and turning to services like Zoom to socialize during the virus.

Financial market conditions are such that it’s a good time to get a loan if you want one because the Committee wants to make borrowing cheap in order to encourage investment.

The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.

COVID-19 has taken over society, and the economy has been one of the areas hardest hit by this whole situation. The committee is acknowledging that there can be no normal as we knew it without the virus being under control. This is the first explicit mention of vaccines that I remember. Add the Fed to a growing chorus of those waiting for mass immunizations.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will 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 Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

Like many of us, the Committee has a lot of thoughts about what’s happening right now. Most of theirs come out in this word vomit of a paragraph. Let’s take this point by point and break it down into something comprehensible.

The Fed has to achieve a balancing act. It would like to see some inflation because that encourages people to make their purchases now rather than waiting for some later point when prices could be higher. The long-run goal is to see inflation averaging 2% annually.

While the Committee doesn’t want inflation to be too high because it devalues the dollar if there’s too much too fast, inflation has been persistently low for quite a while now. In order to make up for lost time, the Fed is willing to let inflation run above 2% for some time before raising interest rates to rein in inflation.

The Federal Reserve controls inflation by controlling the rate at which banks borrow money from each other overnight, the federal funds rate. For now, they’ve chosen to keep this in a range between 0% – 0.25%.

In order to make sure that people have an easier time accessing the funding they need in a crisis, the Federal Reserve has made a couple splashes in the bond market. The Fed committed to $80 billion in Treasury purchases per month and, importantly for homebuyers and homeowners, $40 billion in mortgage-backed securities (MBS) purchases.

MBS are the bonds underlying mortgage rates. The more buyers there are in the MBS market, the lower the yield on those bonds need to be in order to attract a buyer, leading to low mortgage rates. As of last week, the Fed holds $2.1 trillion of MBS, which is one of the ways it keeps rates low and support the housing market, which accounts for a huge portion of overall economic activity.

If you take nothing else away from this, it’s that rates are being kept lower by these purchases. This means it’s a great time to get a mortgage.


 

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will 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.

In making its decisions, the Fed takes a look at a wide range of data. Most of the indicators in the paragraph above are your traditional economic indicators that have been the province of spreadsheet fiends for decades. The reference to public health is a relatively recent addition that shows just how much sway COVID-19 has had on economic activity since last March.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Every official agreed.

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