As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from January 27 and March 17, 2021.
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. ~~The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation.~~ Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak. Inflation continues to run below 2 percent. 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 will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. 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. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. 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.
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.
Implementation Note issued March 17, 2021
| Removed | Added | Significance |
|---|---|---|
| "The pace of the recovery... has moderated in recent months" | "indicators of economic activity and employment have turned up recently" | Positive Growth Signal: Shifts from a narrative of slowing recovery to one of accelerating recovery. |
| "Weaker demand and earlier declines in oil prices have been holding down consumer price inflation." | "Inflation continues to run below 2 percent." | Simplification of Inflation: Removes the specific "headwinds" (oil/demand), moving to a more neutral statement of fact. |
The shift here is subtle but important. In January, the Fed explicitly attributed low inflation to "weaker demand" and "oil prices." By March, they have stripped away these causal explanations, stating simply that inflation "continues to run below 2 percent." While still acknowledging that inflation is low, the removal of the "weaker demand" narrative suggests the Committee is seeing a shift in the underlying economic drivers.
This is the most significant thematic pivot. The January statement highlighted a "moderation" (slowdown) in the recovery. The March statement explicitly notes that indicators have "turned up recently." This signals a transition from a "crisis management" phase to a "recovery acceleration" phase, though the Fed carefully qualifies this by noting that the hardest-hit sectors remain weak.
There is zero change to the forward guidance. The language regarding the federal funds rate (0 to 1/4 percent), the Average Inflation Targeting (AIT) framework, and the quantitative easing (QE) pace ($120bn/month total) remains identical. This indicates that while the economic outlook is improving, the policy response remains firmly in "maximum support" mode.
The Committee has shifted Mildly Hawkish (or "Less Dovish").
While the policy remains aggressively accommodative, the tone has shifted from describing a struggling, moderating economy to one where activity and employment are "turning up." In central bank parlance, acknowledging a strengthening economy while keeping rates at zero is a prerequisite for eventually tightening. By removing the narrative of "weaker demand" and acknowledging the uptick in growth, the Fed is beginning to lay the groundwork for a future transition, even though the actual policy tools remain unchanged.