Fed Shifts Discussion from Accommodation to Maintaining Current Conditions

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on Jan 15, 2021
Updated: Dec 19, 2022
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The Federal Reserve of the United States started the year actively – while no FOMC meeting yet, there were multiple interventions in the market via various interviews or speeches the members held. Such interventions are normal in the time between meetings, and traders focus on the message that the Fed members send – hawkish or dovish. 

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Starting with January 4th, the Fed members were very active in 2021 – twelve various speeches or interviews of voting or non-voting members hit the wires in a little over a week, from January 4th until January 12th. And counting.

What Is the Fed’s Message on Monetary Policy?

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On January 4th, Fed’s member Bostic, a voting member in the Federal Open Market Committee (FOMC), hinted that recalibration of asset purchases could come if vaccines work and economic recovery take hold. For the first time since the pandemic began, one Fed member hints at tapering or removing some of the accommodative measures. Therefore, Bostic’s message was hawkish, or bullish for the currency.

Three days later, the same Fed member had some blunt remarks about tapering, suggesting that the Fed may end the quantitative easing program (i.e., bond-buying) sooner than expected. Another hawkish message, three days apart.

The market did not react for various reasons. First, this is just the voice of one Fed member. Second, most market participants were still on holiday.

Another Fed member, still a voting one, Clarida, sent an opposite message on January 8th. More precisely, Clarida indicated that the pace of purchases (i.e., bond-buying purchases) should continue at the current pace throughout the year.

We won’t cover all the speeches and interviews, but the message the Fed sends out is not one of further extension of the accommodative policies, but one of keeping the things as they are or even reversing course, should there be ground for it.

The stock market continues close to all-time highs, despite the events at the Capitol. Not even the President’s possible impeachment was enough to trigger a move lower. Therefore, it is fair to assume that until next week’s transfer of power, scheduled to take place six days from now, the markets will move in tight ranges, assuming nothing extraordinary happens.

All in all, not even one Fed member did not signal the willingness to do some more easing, and that should be enough to trigger some alarms for USD bears. We’ll find out soon enough what the Fed meant.

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