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29 Jan 2021

Econ Digest

Fed holds rates steady at 0.00-0.25% and continues to purchase bonds at a rate of USD120 billion per month

        The Federal Reserve (Fed) ended its first meeting of 2021 on the night of January 27, 2021 (Thailand time) with the following highlights:

        The Fed did not announce any additional monetary easing, with the U.S. policy rate remaining at 0.00-0.25%, and kept its asset purchase under quantitative easing (QE) program steady at USD120 billion per month, divided into purchases of USD80 billion of treasury securities and USD40 billion of mortgage-backed securities.

         However, holding interest rates and QE limit unchanged does not mean that the Fed is comfortable with the economic situation and waiting for the day to exit the accommodative monetary measures. On the other hand, the Fed remains concerned over the US economy, estimating that the outlook is highly uncertain and that recovery conditions still depend on the COVID-19 situation, as well as the benefits and effectiveness of COVID19 vaccines. While the inflationary pressures remain low, this is not yet a factor that will press the Fed to step back from accommodative monetary measures soon.

         Consequently, the Fed’s stance remains unchanged, which is to focus on revitalizing the US economy and the labor market, while easing monetary policy with the full range of monetary tools available to the Fed when necessary. Currently, the US unemployment rate stands at 6.7%, above the Fed’s estimate of about 4.1% long-term potential.  

         Some investors were disappointed that the Fed kept monetary policy unchanged at this meeting, as they expected more easing signals for the Fed, leading to sell-offs of risky assets for profit and correction of previously gradually rising risks. However, this meeting outcome reflects the low likelihood of the Fed cutting the QE limit or raising interest rates this year, thus the US dollar still faces depreciation pressure for the rest of this year.

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Econ Digest