When analyzing fiscal impact on exchange rates, traders should focus on government expenditure data not narrative …

Political analysis should follow this chain of events. First, there is the world view or philosophy of state leadership. The party or strong man in charge imposes his or her world view on his society. She takes the next step and creates a narrative, writes a story that is consumed by parts of society. There will be conflicting narratives promoted by factions, and via the political system, a winner will be determined. With political power in hand, the victorious faction will draft the policy or action plan that activates the narrative. And finally, to make sure that there is no confusion as to what is the prevailing narrative, it is codified in law for all to read or hear.

The Democratic and Republican parties have been vocal about their world views on inflation. The Republicans argue that Mr Biden’s spending under his American Rescue Plan is leading to high rates of inflation. The Republicans energize their argument by citing the last Consumer Price Index print which came in at 7% year-over-year for December 2021. This was up from the November 2021 print of 6.8%.

The Democrats rebut by arguing that spending under the American Rescue Plan will provide income supports that eventually lead to normal employment levels. Rather than increase consumer prices, the American Rescue Plan, along with the Build Back Better legislation sitting in the Senate, will ease long term prices. Americans have been facing high consumer prices in part due to clogged supply chains and Democrats have been arguing since last spring that this government investment will expand capacity and produce lower prices.

Traders should cut through the political banter and look at the data. Data from the U.S. Bureau of Economic Analysis shows that as a percentage of gross domestic product, federal government spending has held around 7% between 31 March 2021 and 31 December 2021. Actual dollar spending has declined during this period. First quarter 2021 spending was approximately $1,375.2 billion. Federal spending declined in the second quarter 2021 to $1,356.7 billion and fell further in the third quarter 2021 to $1,339.1 billion. During this period, the MarketWatch dollar index signaled dollar strength with the dollar going from 93.23 on 31March 2021 to 95.97 on 31 December 2021.

Along with the dollar strengthening over this period came inflation. Data for the U.S. Bureau of Labor Statistics shows that the Consumer Price Index went from 2.6% in March 2021 to 7.0% in December. Mr Biden could deflect Republican attacks by implying that inflationary pressures are a reflection of the growing money supply spurred on by asset purchases made by the central bank since March 2020. That would leave a few in Washington scratching their heads since the man who led the $120 billion a month purchase of Treasury and agency mortgage-backed securities, Jerome Powell, was nominated by Mr Biden for a second four-year term. In addition, Democratic leadership in the U.S. House and U.S. Senate have been singing Mr Powell’s praises for his interventionist policies.

Granted, the increase in M1 money supply has gone from $18,669.2 billion in March 2021 to $19,874.8 billion in November 2021 (latest figure available) making Mr Powell’s actions an easy target for the “too much money chasing too few goods” argument, but Mr Biden and in particular the progressives in the Congress will need Mr Powell’s cooperation to fund their Build Back Better agenda. The Fed is the Treasury’s underwriter and Progressives can ill afford politics that upset its banker.

The irony is that Mr Biden has showed no penchant to artfully deflect criticism from Republicans to the Fed for his handling of inflation. However, for the trader that is neither here or there. The question should be whether proposed fiscal policy will have an impact on the direction of foreign exchange rates and if so, in what direction.

Alton Drew

20.01.2022

For consultation on how this political or legal event impacts your foreign exchange trade, request an appointment at altondrew@gmail.com.

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No surprises out of Powell’s nomination hearing …

The real economy isn’t supposed to support everyone. It is supposed to employ an optimal number of employees that produce the most income at the least cost for the individuals investing the capital. This is my response to the expected drivel coming out of U.S. Senator Sherrod Brown, Democrat of Ohio, during today’s hearing on the re-nomination of Jerome Powell as chairman of the Board of Governors of the Federal Reserve. Senator Brown in his opening statement expressed his concern that Wall Street banks were enjoying over a decade of high profits while individuals on Main Street were facing the threat of unemployment and rising inflation.

Senator Elizabeth Warren’s line of questioning followed a similar vein to Mr Brown, although the Massachusetts Democrat seemed to go all in on “corporations” versus her usual culprits, the banks. Mr Powell probably determined it was best not to interrupt Mrs Warren by pointing out that the Board of Governors has oversight of banks and not your run-of-the mill corporations. Silence is best. Let her ramble on. Besides, Mrs Warren was likely on a stage of satisfaction having her favorite Fed governor (Lael Brainard) as nominee for the Board’s vice-chair, thus having an embedded check on a “dangerous man” (Warren’s words) in the form of Mr Powell.

If any topic out of the Senate was going to peak trader interest, it would be the topic of inflation. Politically, about a third of the Senate would love to have the ability this election year to say that they did something about inflation, but the Senate along with the House of Representatives, punted away their constitutional power over coin and commerce over a century ago. Although Senator Richard Shelby, Republican of Alabama, and Senator Jack Reed, Democrat of Rhode Island, raised the issue of inflation and the Federal Reserve’s policy timing to address it, none of the senators offered policy recommendations or hinted at legislation designed to mandate requirements for addressing inflation. A number of senators acknowledged the Federal Reserve’s dual statutory mandate of bringing about price stability and generating full employment, but that was the extent of serious discussion on inflation.

In just under 14 hours from this writing, the US Bureau of Labor Statistics will issue its year-over-year estimate on overall inflation. Consensus forecast is at seven percent, relatively in line with last month’s annualized rate of 6.8%. While I don’t do market analysis here, I expect that after the inflation print, the morning will be filled with banter on whether the Federal Reserve will have three rate increases or even four.

Otherwise, Mr Powell will be advanced from the Senate banking committee to the full floor of the Senate where he will likely see his nomination approved. He will likely look more hawkish. He may not have a choice if tomorrow’s number ends up being what we expect.

And as for the usual drivel on the economy and the working man, the inflation number will provide the usual fodder for campaign messaging.

Alton Drew

11.01.2022

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At first blush, what I expect to hear from the Senate banking committee regarding re-appointment of Jerome Powell

Given that President Joe Biden has decided that Jerome Powell is his choice for chairman of the Board of Governors of the Federal Reserve, I expect Mr Powell will garner a sufficient number of votes after today’s re-appointment hearing from Senate Democrats and Senate Republicans for approval for another four-year term. Senator Elizabeth Warren, Democrat of Massachusetts, will likely again make her feelings clear about how dangerous she believes Mr Powell’s bank supervision policies are for the American public. The assertions will make for some C-SPAN TV time drama but that will be about it.

I expect, based in part on his prepared remarks, that Mr Powell will describe a growing economy that has managed to create a strong job market. He is prepared to address the consequences of that growth among which are, in his words, supply and demand imbalances and bottlenecks accompanied by elevated inflation.

Inflation, I suspect, will be today’s hot topic. One-third of the U.S. Senate and all members of the U.S. House of Representatives are up for re-election this November. They want to go home to constituents this campaign season with positive news on when inflation is expected to dissipate. Wage inflation may be noted by Mr Powell where the U.S. Bureau of Labor Statistics reported in its last jobs situation report that non-farm payroll hourly earnings are at $31.31, up $.19 from the November jobs report. With unemployment at 3.9% and the addition of 199,000 non-farm payroll jobs, there is an argument that can be made that the economy is facing a full-employment scenario, thus fueling the probability of increased wage inflation.

For the twelve months ending November 2021, the U.S. experienced 6.8% inflation in all goods and services. Mr Powell had the good political sense to dump the word “transitory” as Americans expect no relief on inflation over the next one to three years as the Federal Reserve Bank of New York reported yesterday.

I would advise retail foreign exchange traders to keep their ears open for hints further refining the timing of the beginning of rate hikes as well as firmer indication as to how many are to be expected. Democratic senators will try to score political brownie points by spinning a narrative about what they can do regarding inflation, including touting support for Mr Biden’s “Build Back Better” bill which, they will argue, expands American transportation and productive capacity, thus alleviating inflationary pressures. Expect Republicans to push back on the Democratic narrative, arguing that Fed tapering of Treasury securities and agency mortgage-backed securities should have started sooner and move at a faster pace.

In reality, the most that the Senate can do for inflation and indirectly to impact the US currency is to move quickly on Mr Powell’s re-appointment, a done deal in my book.

Alton Drew

11.1.2022

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The J-Cubed Corporation and its discount currency …

The J-Cubed Corporation (Jay Powell, Janet Yellen, and Joe Biden) are responsible for wholesale production of a currency ( a fast food restaurant coupon) and creating an underlying value for that currency that makes it attractive to other public corporations ie nations.

The banks, (licensed resellers or “currency pimps”) are responsible for getting the currency into the hands of individuals and businesses that put the coupon to its best use while generating taxes for the J-Cubed Corporation and steady bond yields for individuals (“The Global Johns”).

Are the wholesalers and resellers putting out too much currency? Since October 2020, the U.S. monetary base (currency in circulation plus reserves held in accounts at Federal Reserve banks) has increased by approximately 28.8%. Meanwhile, the Federal Reserve’s preferred metric for inflation, the personal consumption expenditure index, has increased approximately five percent during the same period.

The yield on U.S. 10-year bonds is at 1.49% at the time of this print, up 57 basis points since December 2020.

My question is, will Joe Biden be able to create a narrative that scores him some political points between now and when inflation is expected to abate, which is between early spring and the fall of 2022.

As Bill Clinton learned quickly and clearly in 1994, a sound economy and a path to re-election is about keeping The Global Johns happy. Any other reference to “economy” is just refried noise for the business media to transmit …

Alton Drew

24.12.2021

Elizabeth Warren’s “dangerous man” moment should not impact traders, but traders should determine if she has the votes…

Assuming President Joe Biden nominates Jerome Powell as chairman of the Board of Governors of the Federal Reserve System, Mr Powell will need a simple majority in the U.S. Senate to support his confirmation.  In 2018, Mr Powell was confirmed via a Senate vote of 84-13 which meant that a number of Democrats also voted to support him. Among those dissenting was Elizabeth Warren, Democrat of Massachusetts, who yesterday made it clear that she would not support his nomination in 2022.

Yesterday, during a Senate banking committee hearing, Mrs Warren expressed her belief that Mr Powell is making it too easy for large banks to take on big risks.  “The Fed chair should be like a sentry, standing at the gates, making certain that banks are not loading up on risks that could take down the entire economy,” Warren told Bloomberg News.  Mrs Warren went as far yesterday to mention Archegos Capital, the family office who exposed a number of banks to losses due to bad bets made by the family office.

That Mrs Warren would vehemently express her intent not to support Mr Powell (referencing him as a “dangerous man”) tells me that she has already received signals from the White House that Mr Powell will be nominated by President Biden.  The Secretary of the Treasury, Janet Yellen, has expressed her support for Mr Powell and it is likely that he will garner a large majority of Republican support and the support of a sufficient number of Democrats.  I believe this support will be provided in part to push back against the progressivism in the Congress, particularly in the House of Representatives.

Mrs Warren has not made any compelling arguments regarding the market forces that impact foreign exchange. There has been no discussion from her camp regarding relative income changes, product availability, relative interest rates, or speculation between the U.S. and other countries; market force observations that are of greater importance to traders and central banks.  Such arguments, if substantiated, would have probably swayed support to her position among more senators (maybe), but we will never know.

Mr Biden’s rare smart play will be to nominate Mr Powell thereby providing the interbank market with increased certainty as to monetary policy.  Regarding Mrs Warren, this may be just another “meh” moment.

Alton Drew

29 September 2021

The impact of Build Back Better on the interbank market will be reduced by increasing likelihood Democrats failing to come together on its passage… And Jerome Powell may benefit

According to the Tax Foundation, a public policy think tank, President Biden’s proposed “Build Back Better” plan will generate government revenues of $2.1 trillion over the next ten years.  After accounting for approximately $1 trillion in tax credits for individuals and businesses, the Tax Foundation estimates the US government will net just over $1 trillion in revenues over the ten-year period.  This amount can be whittled down further by accounting for tax revenues recovered from increased compliance activity bringing the estimated bottom-line amount generated to $862 billion.

The economic price for the proposal, according to the Tax Foundation, would be a decrease in long-run gross domestic product by .98%; a reduction in capital stock of 1.84%; a wage rate reduction of .68%; and net loss of 303,000 jobs.

Meanwhile, the Committee for a Responsible Federal Budget, a public policy think tank, estimates that after accounting for offsets and expiration of a number of programs, Mr Biden’s “Build Back Better” plan will require financing of another $2.9 trillion of debt.  The Committee estimates that interest on new debt may be $1.1 trillion by 2031.

Today, the yield on the ten-year Treasury note closed at 1.48%, according to data by Bloomberg, after getting as high as 1.50%.  It is unclear whether the increase in rates accounts for passage tax increases and social welfare spending contained in the “Build Back Better” plan.

The future economic impact from this plan appears to be flat over the next ten years.  A .98 percent reduction in economic growth over ten years is negligible.  So is a loss of 303,000 jobs.  In addition, Speaker Nancy Pelosi is signaling to the progressive wing of the Democratic Party that they may have to settle for a plan that falls short of $3.5 trillion.  If the bill fails in the House, not only is impact a moot concern, but the Democrats and Mr Biden will see a further drop in their political capital where their constituents see them as incapable of delivering on big ideas.

If the package fails, I can see some upside for Jerome Powell, current chairman of the Board of Governors of the Federal Reserve.  Mr Powell’s tenure as chair ends in February 2022.  A failed Biden economic passage brought on by a fractured party may mean that Mr Biden will have to take any opportunity to infuse confidence in the American economy.  So far, the Federal Reserve has been that one constant.  Mr Biden may have no choice, especially going into the mid-term election campaign season, but to re-appoint Mr Powell to another term as head of the Fed.

Alton Drew

27 September 2021  

Interbank Market News Scan: Federal Reserve Board chairman appears before the U.S. Senate banking committee …

15 July 2021

Federal Reserve Board chairman continues testimony before Congress.

Federal Reserve Board chairman Jerome Powell is expected today to share with the U.S. Senate Committee on Banking, Housing and Urban Affairs the same testimony shared yesterday with the U.S. House Committee on Financial Services.

Mr Powell, while acknowledging growth in the economy and the threat of increasing prices, did not indicate any changes in the Federal Reserve’s current asset purchase program.  The Federal Reserve will maintain its purchase of Treasury securities and agency mortgage-backed securities totaling $120 billion a month.  

For a consultation on any regulatory or legislative discussions or announcements during today’s hearing, please reach out to us at altondrew@altondrew.com to reserve an appointment.

Exchange rates of interest as of 10:30 am AST

Currency pairExchange rate
AUD/USD*0.7448
EUR/USD*1.1812
GBP/USD*1.3854
USD/CAD*1.2520
USD/CHF*0.9143
USD/JPY*109.9600
USD/XCD+2.7000
USD/NGN+410.5130
USD/MXN*19.9260

Sources: *Reuters +OANDA

Rates reported by the Federal Reserve (Release Date 14 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

4-week Treasury bill: 0.05%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.06%

1-year Treasury bill: 0.08%

Interbank Market News Scan: Powell to deliver testimony before Congress on monetary policy …

14 July 2021

Federal Reserve chairman today speaks on state of monetary policy.

Federal Reserve Board chairman Jerome Powell today will share with Congress his outlook on monetary policy as the United States economy continues to pull itself out of the economic doldrums imposed on it by the Covid-19 pandemic.  Mr Powell will share his observation that as the American economy continues to move toward levels of pre-pandemic economic performance, it will climb through transitory periods of inflation.  Increases in consumer prices may primarily be due to restraints on supply due in part to stressed supply chains.

Mr Powell will testify that the Federal Reserve is still focused on its long-term inflation goal of two percent.  Mr Powell will also note that asset valuations are increasing which in turn is feeding risk appetite amongst investors.  Mr Powell will also advise Congress that the Federal Reserve will continue to maintain its current policy of purchasing Treasury securities and agency mortgage-backed securities currently amounting to $120 billion per month until labor market and other economic factors such as stable prices improve.

Mr Powell’s semi-annual monetary policy report to Congress is submitted pursuant to Section 2B of the Federal Reserve Act. The monetary policy report did not go into any detail regarding international trade or exchange rates.

For a consultation on any regulatory or legislative discussions or announcements during today’s hearing, please reach out to us at altondrew@altondrew.com to reserve an appointment.

Exchange rates of interest as of 12:15 pm AST

Currency pairExchange rate
AUD/USD*0.7478
EUR/USD*1.1819
GBP/USD*1.3879
USD/CAD*1.2454
USD/CHF*0.9163
USD/JPY*110.1200
USD/XCD+2.7000
USD/NGN+410.3770
USD/MXN*19.9560
Sources: *Reuters +OANDA

Rates reported by the Federal Reserve (Release Date 13 July 2021)

Effective Fed Funds Rate: 0.10%

Discount Window:  0.25%

Prime Bank Rate: 3.25%

3-month Treasury bill: 0.05%

6-month Treasury bill: 0.06%

1-year Treasury bill: 0.07%

Federal Reserve chairman Jerome Powell’s testimony before Congress puts spotlight on a recovering economy without emphasizing yield impacts …

The following is Federal Reserve chairman Jerome Powell’s testimony before the U.S. House of Representative’s Committee on Financial Services:

“Chairwoman Waters, Ranking Member McHenry, and other members of the Committee, thank you for the opportunity to discuss the measures we have taken to address the hardship wrought by the pandemic.

I would like to start by noting the upcoming one-year anniversary of the CARES Act (Coronavirus Aid, Relief, and Economic SecurityAct). With unanimous approval, Congress provided by far the fastest and largest response to any postwar economic downturn, offering fiscal support for households, businesses, health-care providers, and state and local governments. This historically important legislation provided critical support in our nation’s hour of need. As the virus arrived in force, our immediate challenge was to limit the severity and duration of the fallout to avoid longer-run damage. At the Fed, we also acted with unprecedented speed and force, using the full range of policy tools at our disposal.

Today the situation is much improved. While the economic fallout has been real and widespread, the worst was avoided by swift and vigorous action—from Congress and the Federal Reserve, from across government and cities and towns, and from individuals, communities, and the private sector. More people held on to their jobs, more businesses kept their doors open, and more incomes were saved. But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.

As we have emphasized throughout the pandemic, the path of the economy continues to depend on the course of the virus. Since January, the number of new cases, hospitalizations, and deaths has fallen, and ongoing vaccinations offer hope for a return to more normal conditions later this year. In the meantime, continued social distancing and mask wearing will help us reach that goal.

Indicators of economic activity and employment have turned up recently. Household spending on goods has risen notably so far this year, although spending on services remains low, especially in sectors that typically require in-person gatherings. The housing sector has more than fully recovered from the downturn, while business investment and manufacturing production have also picked up.

As with overall economic activity, conditions in the labor market have recently improved. Employment rose by 379,000 in February, as the leisure and hospitality sector recouped about two-thirds of the jobs it lost in December and January.

The recovery has progressed more quickly than generally expected and looks to be strengthening. This is due in significant part to the unprecedented fiscal and monetary policy actions I mentioned, which provided essential support to households, businesses, and communities.

However, the sectors of the economy most adversely affected by the resurgence of the virus, and by greater social distancing, remain weak, and the unemployment rate—still elevated at 6.2 percent—underestimates the shortfall, particularly as labor market participation remains notably below pre-pandemic levels.

We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit.

The Federal Reserve’s response has been guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote the stability of the financial system.

When financial markets came under intense pressure last year, we took broad and forceful actions, deploying both our conventional and emergency lending tools to more directly support the flow of credit. Our actions, taken together, helped unlock more than $2 trillion in funding to support businesses large and small, nonprofits, and state and local governments between April and December. This support, in turn, has helped keep organizations from shuttering and put employers in both a better position to keep workers on and to hire them back as the recovery continues.

Our programs served as a backstop to key credit markets and helped restore the flow of credit from private lenders through normal channels. We deployed these lending powers to an unprecedented extent last year. Our emergency lending powers require the approval of the Treasury and are available only in very unusual circumstances.

Many of these programs were supported by funding from the CARES Act. Those facilities provided essential support through a very difficult year. They are now closed, and the Federal Reserve has returned the large majority of the Treasury’s CARES Act equity, as required by law. Our other emergency lending facilities are following suit imminently, although we recently extended the PPPLF (Paycheck Protection Program Lending Facility) for another quarter to continue to support the PPP (Paycheck Protection Program).

Everything the Fed does is in service to our public mission. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible on behalf of communities, families, and businesses across the country.

Thank you. I look forward to your questions.”

Interbank market news scan: Fed chair Powell shares economic output with US Senate …

The following opening statement was delivered by Jerome Powell, chairman of the Board of Governors of the Federal Reserve System:

My takeaways

  • The pandemic has had a disproportionate impact on minority group and low-wage workers.
  • The Federal Reserve’s monetary policy remains the same. No change in the two-percent longer-run inflation goal.
  • Current monetary policy of two percent longer-run inflation goal asserts an accounting for positive benefits to low and moderate income groups with a flexible inflation average target with two percent as the anchor.
  • The Federal Reserve will continue with its purchase of $120 billion a month in mortgage-backed and agency-backed securities each month.

“Chairman Brown, Ranking Member Toomey, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report.

At the Federal Reserve, we are strongly committed to achieving the monetary policy goals that Congress has given us: maximum employment and price stability. Since the beginning of the pandemic, we have taken forceful actions to provide support and stability, to ensure that the recovery will be as strong as possible, and to limit lasting damage to households, businesses, and communities. Today I will review the current economic situation before turning to monetary policy.

Current Economic Situation and Outlook
The path of the economy continues to depend significantly on the course of the virus and the measures undertaken to control its spread. The resurgence in COVID-19 cases, hospitalizations, and deaths in recent months is causing great hardship for millions of Americans and is weighing on economic activity and job creation. Following a sharp rebound in economic activity last summer, momentum slowed substantially, with the weakness concentrated in the sectors most adversely affected by the resurgence of the virus. In recent weeks, the number of new cases and hospitalizations has been falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year. However, the economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.

Household spending on services remains low, especially in sectors that typically require people to gather closely, including leisure and hospitality. In contrast, household spending on goods picked up encouragingly in January after moderating late last year. The housing sector has more than fully recovered from the downturn, while business investment and manufacturing production have also picked up. The overall recovery in economic activity since last spring is due in part to unprecedented fiscal and monetary actions, which have provided essential support to many households, businesses, and communities.

As with overall economic activity, the pace of improvement in the labor market has slowed. Over the three months ending in January, employment rose at an average monthly rate of only 29,000. Continued progress in many industries has been tempered by significant losses in industries such as leisure and hospitality, where the resurgence in the virus and increased social distancing have weighed further on activity. The unemployment rate remained elevated at 6.3 percent in January, and participation in the labor market is notably below pre-pandemic levels. Although there has been much progress in the labor market since the spring, millions of Americans remain out of work. As discussed in the February Monetary Policy Report, the economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the hardest hit. In particular, the high level of joblessness has been especially severe for lower-wage workers and for African Americans, Hispanics, and other minority groups. The economic dislocation has upended many lives and created great uncertainty about the future.

The pandemic has also left a significant imprint on inflation. Following large declines in the spring, consumer prices partially rebounded over the rest of last year. However, for some of the sectors that have been most adversely affected by the pandemic, prices remain particularly soft. Overall, on a 12-month basis, inflation remains below our 2 percent longer-run objective.

While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year. In particular, ongoing progress in vaccinations should help speed the return to normal activities. In the meantime, we should continue to follow the advice of health experts to observe social-distancing measures and wear masks.

Monetary Policy
I will now turn to monetary policy. In the second half of last year, the Federal Open Market Committee completed our first-ever public review of our monetary policy strategy, tools, and communication practices. We undertook this review because the U.S. economy has changed in ways that matter for monetary policy. The review’s purpose was to identify improvements to our policy framework that could enhance our ability to achieve our maximum-employment and price-stability objectives. The review involved extensive outreach to a broad range of people and groups through a series of Fed Listens events.

As described in the February Monetary Policy Report, in August, the Committee unanimously adopted its revised Statement on Longer-Run Goals and Monetary Policy Strategy. Our revised statement shares many features with its predecessor. For example, we have not changed our 2 percent longer-run inflation goal. However, we did make some key changes. Regarding our employment goal, we emphasize that maximum employment is a broad and inclusive goal. This change reflects our appreciation for the benefits of a strong labor market, particularly for low- and moderate-income communities. In addition, we state that our policy decisions will be informed by our “assessments of shortfalls of employment from its maximum level” rather than by “deviations from its maximum level.”1 This change means that we will not tighten monetary policy solely in response to a strong labor market. Regarding our price-stability goal, we state that we will seek to achieve inflation that averages 2 percent over time. This means that, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time. With this change, we aim to keep longer-term inflation expectations well anchored at our 2 percent goal. Well-anchored inflation expectations enhance our ability to meet both our employment and inflation goals, particularly in the current low interest rate environment in which our main policy tool is likely to be more frequently constrained by the lower bound.

We have implemented our new framework by forcefully deploying our policy tools. As noted in our January policy statement, we expect that it will be appropriate to maintain the current accommodative target range of the federal funds rate 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, we will continue to increase our holdings of Treasury securities and agency mortgage-backed securities at least at their current pace until substantial further progress has been made toward our goals. These purchases, and the associated increase in the Federal Reserve’s balance sheet, have materially eased financial conditions and are providing substantial support to the economy. The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved. We will continue to clearly communicate our assessment of progress toward our goals well in advance of any change in the pace of purchases.

Since the onset of the pandemic, the Federal Reserve has been taking actions to support more directly the flow of credit in the economy, deploying our emergency lending powers to an unprecedented extent, enabled in large part by financial backing and support from Congress and the Treasury. Although the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) facilities are no longer open to new activity, our other facilities remain in place.

We understand that our actions affect households, businesses, and communities across the country. Everything we do is in service to our public mission. We are committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible.

Thank you, I am happy to take your questions.”

23 February 2021