Dr. Ed Seifried’s FOMC Meeting Commentary Report – July 27 – 28

FEDERAL OPEN MARKET COMMITTEE (FOMC) MEETING RESULTS:

DATE: July 27 - 28, 2021  MEETING LOCATION: Virtual

  1. 1
    Fed pledges to use full range of tools to assist the economy. Fed does not change rates -keeps interest rate range at 0.0% - 0.25%.
  2. 2
    Fed launches a standing Repo Facility to boost market liquidity.
  3. 3
    The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals.
  4. 4
    Fed claims recent inflation is transitory!

ECONOMIC HIGHLIGHTS: The Federal Reserve pledges to do everything in its power to assist the economy.

  • "The progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen.
  • The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered.
  • Inflation has risen, largely reflecting transitory factors.
  • 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 continues to depend on the course of the virus.
  • Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”

ANNOUNCEMENTS: Fed funds rate unchanged. Fed funds range remains 0.0% - 0.25%. Fed pledges more bond buying if necessary.

  • “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, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals.
  • These asset purchases help foster smooth market functioning and 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."

MONETARY POLICY IMPLEMENTATION ACTIONS: The Fed established a so-called standing repo facility, effective July 29, 2021. The Fed said the new tool will take in Treasury, agency-debt, and agency-mortgage-backed securities from primary dealers in exchange for short-term loans of cash, at a rate of 0.25%. It established a cap of $500 billion on the facility. This new tool would give the central bank additional help in controlling the level of the federal-funds rate and help calm markets in the times of stress by providing access to liquidity. The complete list of implementation steps is listed below:

  • “The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on required and excess reserve balances at 0.15 percent, effective July 29, 2021.
  • Undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 1/4 percent.
  • Increase the System Open Market Account holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities.
  • Conduct overnight repurchase agreement operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion; the aggregate operation limit can be temporarily increased at the discretion of the Chair.
  • Conduct overnight reverse repurchase agreement operations at an offering rate of 0.05 percent and with a per-counterparty limit of $80 billion per day; the per-counterparty limit can be temporarily increased at the discretion of the Chair.
  • Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities and reinvest all principal payments from the Federal Reserve's holdings of agency debt and agency MBS in agency MBS.
  • Allow modest deviations from stated amounts for purchases and reinvestments, if needed for operational reasons.
  • Engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency MBS transactions."

VOTING RESULTS: No dissenting votes

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles and Christopher J. Waller.


NEXT MEETING: September 21 - 22, 2021

ABOUT THE AUTHOR

Dr. Edmond J. Seifried, PhD

Dr. Seifried is Professor Emeritus of Economics and Business at Lafayette College in Easton, Pennsylvania and Executive Consultant for the Sheshunoff CEO Affiliation Programs. 

Dr. Seifried serves as the dean of the Virginia and West Virginia Banking Schools and has served on the faculty of numerous banking schools including: Stonier Graduate School of Banking, and the Graduate School of Banking of the South.