In the last Federal Open Market Committee press conference, Federal Reserve Chairman Jerome Powell reiterated that low rates are here to stay until the economy and labor markets are back to pre-coronavirus levels. And, the committee is prepared to act if conditions further deteriorate. The stock market jumped nearly 1% following the FOMC statement but then gave up these gains and finished in the red following Powell's press conference.

Changes in Statement

This was the last FOMC meeting before the election. Given the aggressive moves made earlier this year, there wasn't any expectations of further action. However, he Fed did update its "Summary of Economic Projections" to show a smaller decline in GDP and a lower unemployment rate from its previous meeting due to the economy's continued recovery from the nadir in the Spring.

Another change in the FOMC statement was integrating its new inflation framework. In addition to rate cuts and a variety of programs to inject liquidity into markets, the Fed also announced a change in its framework to only hike rates if inflation was persistently above 2% rather than in anticipation of it going over 2%. In its statement, the FOMC said, "With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent."

Powell's Press Conference

At his press conference, Powell reiterated the need for Congress to deliver more fiscal stimulus as certain parts of the economy will continue to struggle without it. He noted that 11 million additional people are largely employed due to the pandemic due to economic activity being impaired in certain industries that will take time to return to previous levels. He added that the Fed's economic projections assume that additional fiscal stimulus will be delivered.

Powell was also forceful in stating that the Fed was not out of ammo and had plenty of tools to stimulate if necessary. He noted that these additional tools include more lending programs, further expansion of the balance sheet, and forward guidance.

Takeaways

There was nothing surprising about the FOMC meeting. The Powell Fed has been very transparent in terms of its framework and assessment of the economy. It's been quite successful in terms of relieving any stress in the "financial economy" following the coronavirus crash in February and March. This is evident by the bustling IPO market, record-low spreads on all types of debt, recovery in corporate debt, and stock prices recovering to new highs.

One lesson from the past decade is that monetary policy has a limited impact on the "real economy". And one lesson from the past year is that fiscal stimulus is remarkably effective in terms of stimulating the economy and seems to have blunted the worst impacts of the pandemic.