FOMC: Too soon to taper – UOB

Alvin Liew, Senior Economist at UOB Group, assesses the latest FOMC event.

Key Quotes

“The Federal Reserve, as widely expected, kept its policy rate and asset purchase program unchanged at its January 2021 FOMC meeting. It adjusted the wording around the economic recovery, saying that the pace has ‘moderated’ in recent months, and it included ‘the progress of vaccination’ to be considered in the path of the economic recovery.”

“FOMC Chair Jerome Powell reiterated his previous stance, saying that it is too early to discuss tapering asset purchases, and that when the Fed is thinking of starting to reduce the program, it will ‘communicate it well in advance of what will be a gradual taper’. He continued to warn about the highly uncertain recovery path and the importance of fiscal support.”

“Going forward, our base case is for the Fed to stay on hold for most of 2021, at least and the taper discussion will only start in late 2021/early 2022. This is premised on the successful rollout of vaccinations across the US, more fiscal stimulus in the coming months, and the subsequent reduction in COVID-19 infections and deaths, following the dreadful surge during the winter months. Any significant deviation will likely prompt the Fed back into action.”