Highlights of the FOMC statement
- Repeats that inflation has risen, largely reflecting transitory factors
- Fed establishes standing repo facilities
- The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered.
- Previously said: "The sectors most adversely affected by the pandemic remain weak but have shown improvement"
The surprise here is the Fed saying that it has made progress towards its goals. That's lifted the dollar initially. So the question is what is 'progress' and what is 'substantial further progress'? That will be a question for Powell to answer.
Prior statement
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.
New statement:
Last December, the Committee indicated that it would 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 its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.
This is undoubtedly a tip-toe towards a taper and a bit of a surprise. It looks like 'substantial further progress' might be gone even though just two weeks ago Powell said the standard of 'substantial further progress' was 'still a ways off'. The words 'substantial further progress' are still there but in the past tense (referring to something they said previously).
We will leave it up to Powell at the bottom of the hour to clarify.
