Thursday, Jun 17, 2021 / 9:33 a.m. / by Federal Reserve / Header image credit: Federal Reserve
The Federal Reserve is committed to using its full range of tools to support the US economy during these difficult times, thereby promoting its maximum employment and price stability goals.
Advances in vaccination have reduced the spread of COVID-19 in the United States. Amid this progress and strong political support, economic activity and employment indicators have strengthened. The sectors most affected by the pandemic remain weak but have shown improvement. Inflation has increased, largely reflecting transient factors. Overall financial conditions remain accommodative, partly reflecting policy measures aimed at supporting the economy and the flow of credit to US households and businesses.
The trajectory of the economy will depend significantly on the evolution of the virus. Advances in immunization are likely to continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.
The Committee seeks to achieve a maximum employment and inflation rate of 2% in the longer term. As inflation has remained below this longer-term target, the Committee will aim to maintain inflation just above 2% for a period of time, such that inflation averages 2% over time and that long-term inflation expectations remain firmly anchored at 2%. The Committee expects to maintain an accommodative monetary policy until these results are achieved. The Committee has decided to maintain the target range for the federal funds rate at 0 to 1/4 percent and expects it to be appropriate to maintain this target range until labor market conditions. have reached levels consistent with the Committee’s estimates on Maximum Employment, and inflation has risen to 2% and is on track to moderately exceed 2% for some time. In addition, the Federal Reserve will continue to increase its holdings of treasury securities by at least $ 80 billion per month and agency mortgage-backed securities by at least $ 40 billion per month until that further substantial progress has been made towards the maximum number of jobs and price stability targets. These asset purchases help promote the smooth functioning of markets and supportive financial conditions, thus 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 the information received for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy if necessary should any risks arise that could hamper the achievement of the Committee’s objectives. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflationary pressures and inflation expectations, and financial and international developments.
Decisions on the implementation of monetary policy
The Federal Reserve has taken the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its declaration June 16, 2021:
The Board of Governors of the Federal Reserve System voted unanimously to set the interest rate paid on required and excess reserve balances at 0.15%, effective June 17, 2021. Interest rate setting paid on required and excess reserve balances at 15 basis points above the bottom of the Federal Funds rate target range aims to encourage trading in the Federal Funds market at rates well within the Federal target range Open Market Committee and to support the proper functioning of short-term funding markets.
As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk of the Federal Reserve Bank of New York, until instructed otherwise, to execute trades in the Open Market System account. in accordance with the following national policy directive:
“As of June 17, 2021, the Federal Open Market Committee asks the Desk to:
- Undertake open market operations as necessary to keep the fed funds rate within a target range of 0 to 1/4 percent.
- Increase the system’s open market account holdings of Treasury securities by $ 80 billion per month and $ 40 billion per month in agency mortgage-backed securities (MBS).
- Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as necessary to keep markets for these securities functioning properly.
- Conduct repurchase transactions to support the effective implementation of policies and the functioning of short-term US dollar funding markets.
- Carry out overnight reverse repurchase transactions at an offer rate of 0.05% and with a counterparty limit of $ 80 billion per day; the limit per counterparty may be temporarily increased at the discretion of the President.
- Renew all principal payments from Federal Reserve holdings of Treasury securities at auction and reinvest all principal payments from Federal Reserve holdings of agency debt and agency MBS into agency MBS.
- Allow modest deviations from the amounts shown for purchases and reinvestments, if necessary for operational reasons.
- Engage in dollar and coupon exchange transactions as necessary to facilitate the settlement of Federal Reserve agency MBS transactions. “
In related action, the Federal Reserve Board of Governors voted unanimously to approve setting the primary lending rate at the current level of 0.25%.
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