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Fed Minutes Released Amid Political Tumult Point to Continued Monetary Stimulus

Don Curren January 6, 2021

The minutes of the Federal Reserve’s most recent policy meeting in December, released this afternoon amid ongoing political tumult, reflected a central bank determined to provide ample policy support to an economy locked in a difficult struggle against the depredations of the coronavirus pandemic.

The release of the record of the Fed policymakers’ deliberations may have gone somewhat unnoticed amid a flurry of developments on the political front, with police ordering the evacuations of two buildings on Capitol Hill in response to supporters of President Donald Trump storming past barricades near the Capitol Building and one of two critical runoff races for Senate seats in the state of Georgia remaining undecided.

Early this afternoon, Senate Majority Leader Mitch McConnell forcefully argued it was Congress’ duty to confirm President-elect Joe Biden’s election victory Wednesday afternoon, despite the formal objections of dozens of congressional Republicans and the protests by supporters of President Trump.

The US dollar, which had eked out modest gains ahead of the minutes’ release, advanced modestly after they were published, but market players likely remained focused on political developments and their implication for fiscal policy.

The minutes were significant, however, in reaffirming that, for the time being, the Fed will likely continue to maintain its stimulative policy stance. They said the members of the Federal Open Market Committee agreed the Fed “was 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.”

“(Members) noted that economic activity and employment had continued to recover but remained well below their levels at the beginning of the year and that weaker demand and earlier declines in oil prices had been holding down consumer price inflation,” the minutes said.

“(Members) agreed that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term,” they said.

“Regarding the decisions on the pace and composition of the Committee’s asset purchases, all participants judged that it would be appropriate to continue those purchases at least at the current pace, and nearly all favored maintaining the current composition of purchases, although a couple of participants indicated that they were open to weighting purchases of Treasury securities toward longer maturities,” the minutes said.

With the Fed’s shift last year to targeting inflation on an average basis and some Fed policymakers signaling comfort with a relatively high degree of inflation, the US central bank is unlikely to move swiftly to reduce monetary accommodation even if the economy revs up significantly in response to fiscal stimulus measures embraced by the incoming Biden administration and inflation escalates.

Earlier on Wednesday, Democrat Raphael Warnock had been projected to win one of Georgia’s two Senate run-offs, putting the Senate majority within reach of the Democratic Party.

In the other race, Democrat Jon Ossoff was projected to win as of Wednesday afternoon, and his victory would mean Democrats would have a 50-50 seat split with Republicans in the Senate, with vice-president-elect Kamala Harris poised to cast tie-breaking votes, but the Associated Press has not declared a winner in that race.

Don Curren
Market Strategist and Content Editor
dcurren@cambridgefx.com
@dbcurren

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