The FED decided as expected but with a statement that looks less hawkish than many in the market were foreseeing. Mishkin already criticised them. They acknowledge that on the inflation part of the mandate they are over target but they remain below for the maximum employment part
the more normal unemployment rate U3 is low (4.2) but that is because the participation rate in the active population came down and there are still several million persons that are not employed now but were in Feb 2020. U6 is at 8%. They are respecting the dual mandate! 2/
They sound more fearful of the virus than many others. On the other hand, they (correctly in my view) continue to expect a visible lowering of inflation (PCE). from 5.3% this year to 2.6% in 22, and 2.3 % 2.1% in the next 2 years. Supply shocks, in the end, will abate 3/
No mention of rate hikes in the statement, but foreseen in the dots.FED growth forecasts point to a slight reduction in 21 (5.5% instead of 5%) and 22 (4% instead of 4.3% with growth decelerating to 2% in 24 and 1.8% in the longer run (potential growth). 4/
Powell said that they expect the maximum employment to be attained next year, and presumably, rate hikes will come. In summary, a balanced approach, respecting the dual mandate and resisting the few inflation hawks around that do not respect it. 5/5
Writing the previous tweets while Powell was speaking, I forgot to mention that the main decision was to double the pace of reducing purchases, so that they stop adding to the stock by the end of March. Not clear, though, about what they will do after that. 6/6
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