Fed Delivers Boilerplate Statement, Reiterates Promises Amid Election Uncertainty

In some respects, the Fed is likely a bit disappointed with the outcome of the US election.

Assuming Joe Biden’s lead holds, Jerome Powell will enjoy not being publicly berated by The White House for every perceived monetary misstep, but Democrats’ failure to score big gains in the Senate paves the way for legislative gridlock.

Gridlock, in turn, points to a more subdued fiscal impulse and probably means additional stimulus beyond the next virus relief bill (which is now virtually certain to come in well below the $2.2 trillion in measures Democrats preferred) will be a heavy lift on Capitol Hill.

And, so, the burden of sustaining the recovery will likely fall disproportionately on monetary policy, with predictable results. As I put it earlier Thursday: Three years from now, everyone will blame Powell and his colleagues for exacerbating inequality, keeping rates too low for too long, and inflating financial asset bubbles, without even mentioning that this outcome was preordained when the public once again decided that America isn’t ready for a more modern approach to fiscal policy.

At the November meeting, the Fed kept policy on hold, as expected, but emphasized that the recovery is far from complete. “Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the largely boilerplate statement read. “Weaker demand and earlier declines in oil prices have been holding down consumer price inflation.”

Minutes from the September meeting showed Fed officials assumed additional fiscal stimulus by the end of this year. Nancy Pelosi has been keen to suggest she’s willing to work to get that done in the lame duck session, but election litigation from Donald Trump could distract from that effort and forestall any progress.

The next move from the Fed is widely anticipated to be WAM extension or perhaps a more aggressive pace of monthly asset purchases. That will have to wait for December, at least. No such move was expected Thursday, and nothing was delivered. The language around asset purchases was left unchanged, with the Fed repeating the pledge to increase its holdings of Treasurys and agency MBS “at least at the current pace” over the “coming months.”

There’s nowhere else to go on forward guidance, with outcome-based language adopted in September. Average inflation targeting is already in place, despite no one (including and especially Fed officials) being able to say precisely what it means.

One thing I noted over the weekend is that if the GOP does hold the Senate, it would presumably mean Democrats will see little utility in waiting to pass a new stimulus bill. Think about it this way: If there’s no prospect of getting everything they want when the calendar flips, then it should increase the odds of Pelosi agreeing to piecemeal legislation. Why wait if a “new” Republican Senate is just going to act the same way the “old” one did?

Again, that may come down to how willing Trump is to do something nice for Americans on his way out the door. I’ll leave it to readers to decide how inclined he’ll be to sign a stimulus bill between now and the assumed handover.

“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 Fed reiterated Thursday.

In the press conference, Powell will likely be asked how the Fed assesses the odds of additional stimulus, and how that might affect monetary policy going forward. He’ll be asked the same question about the presidency, even as there wasn’t a clear winner by Thursday afternoon.

Powell will surely try to avoid saying anything that tips his political preferences as they relate to the current conjuncture between the virus, the Fed, Congress, and The White House.

Full November Fed statement

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.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. 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.

The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

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, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

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.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Patrick Harker; Robert S. Kaplan; Loretta J. Mester; and Randal K. Quarles. Ms. Daly voted as an alternate member at this meeting.