The US Federal Reserve remains on the gas in terms of monetary policy despite the prospect of massive corona aid from the new government. It left the key rate in a range of zero to 0.25 percent on Wednesday. At the same time, the monetary authorities around Federal Reserve Chairman Jerome Powell want to maintain the pace of their monthly security purchases of 120 billion dollars (99 billion euros) to stabilize the economy.
A shutdown is therefore only an option when “substantial further progress” has been made on the way to full employment and price stability. According to the Fed, the corona crisis continues to weigh on the economy and the labor market and entails considerable risks for the economic outlook. The pace of economic recovery has already slowed in the past few months.
Powell recently made it clear that there is still a long way to go to full employment and at the same time put an end to the debate about an early meltdown in purchasing volume. That discussion had contributed to higher ten-year US bond yields. After the interest rate decision, the paper yielded little change at 1.011 percent.
Even if the discussion about shutting down purchases will not dry up anytime soon, the “Fed liquidity tap” will remain wide open for a long time, says economist Bastian Hepperle from Bankhaus Lampe.
Raphael Bostic, head of the Atlanta Fed district, initiated the debate about a cutback in securities purchases, known in technical jargon as “tapering”. He hopes that the purchase program can be readjusted “in a very short time” if the vaccination campaign is successful.
The new US President Joe Biden has set the goal of giving 100 million vaccinations in 100 days. At the same time, Biden, in collaboration with Treasury Secretary and former Fed chairwoman Janet Yellen, wants to bring a $ 1.9 trillion economic stimulus program through Congress to avert a recession.
“The appointment of Janet Yellen as Treasury Secretary is likely to ease future discussions between the Fed and the government,” said economist François Rimeu of asset manager La Française AM. Economist Friedrich Heinemann from ZEW also sees it this way. Basically, Donald Trump's departure from the White House is like an interest rate cut for the US economy: “The Fed no longer has to pull the chestnuts out of the fire and could soon even begin to prepare for an exit from its extremely expansionary policy.”
