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Little change expected as Fed ends first meeting of Biden era - LMBC Business
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Little change expected as Fed ends first meeting of Biden era

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Federal Reserve Chair Jerome Powell (left) and his predecessor Janet Yellen, now US Treasury secretary (right), will need to work together to manage the economic recovery./AFP
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Jan 27, 2021 - 12:06 PM

WASHINGTON — The Federal Reserve will on Wednesday conclude its first meeting since US President Joe Biden took office, and while the central bank is certain to comment on the health of the country’s economy amid the Covid-19 pandemic, analysts say it’s unlikely to change its main policies.

The policy-setting Federal Open Market Committee (FOMC) will almost certainly keep interest rates at their rock-bottom level following the conclusion of its two days of deliberations, held as the world’s largest economy endures the worst coronavirus outbreak globally with a death toll topping 420,000.

But markets will nonetheless closely follow the statement released after the meeting and Fed Chair Jerome Powell’s press conference to see if policymakers remain optimistic about US growth prospects.

While vaccines have raised hopes about a solid recovery, snags in distribution and a new wave of infections could dampen enthusiasm among businesses and consumers, even as stock markets have hit successive records.

“The Fed has been consistent in the view that the course of the virus determines the course of the economy. The surge in cases, hospitalizations and fatalities since the last meeting has been staggering,” said Grant Thornton economist Diane Swonk.

Biden has proposed a $1.9 trillion rescue package that the IMF estimates would boost economic growth by five percent over three years.

Powell has repeatedly highlighted the need for government spending to take over the role of supporting the economy from the central bank.

And it will be up to Janet Yellen, Powell’s predecessor as Fed chief who is now Biden’s Treasury secretary, to take up the lead in pushing that stimulus package through Congress.

“The Fed and Treasury will need to work closely to limit damage to the economy going forward. I can’t imagine a closer and more collegial alliance than that between Powell and Yellen,” Swonk said.

The Fed may be set to assume a lower-profile role in the economy’s recovery, while Powell is also likely to see calm return to the central bank after Biden’s predecessor in the White House Donald Trump barraged him with attacks and insults on Twitter.

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