As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from March 17 and April 28, 2021. This period represents a critical pivot in the Fed's perception of the pandemic recovery.
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. Amid progress on vaccinations and strong policy support, ~~Following a moderation in the pace of the recovery,~~ indicators of economic activity and employment have strengthened ~~turned up recently~~, although the sectors most adversely affected by the pandemic remain weak but have shown improvement. ~~Inflation continues to run below 2 percent.~~ 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 will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on the economy ~~economic activity, employment, and inflation~~, and risks to the economic outlook remain ~~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 April 28, 2021
| Removed | Added | Significance |
|---|---|---|
| "Following a moderation in the pace of the recovery... turned up recently" | "Amid progress on vaccinations and strong policy support... have strengthened" | Shifts from a "rebounding" narrative to a "strengthening" narrative; attributes growth to specific drivers (vaccines/fiscal policy). |
| "Inflation continues to run below 2 percent" | "Inflation has risen, largely reflecting transitory factors" | Critical Pivot. Acknowledges the end of the deflationary/low-inflation era, but introduces the "transitory" shield to avoid premature tightening. |
| "poses considerable risks to the economic outlook" | "risks to the economic outlook remain" | Softens the risk language. "Considerable risks" $\rightarrow$ "risks remain" indicates increasing confidence in the recovery. |
| "weigh on economic activity, employment, and inflation" | "weigh on the economy" | Generalizes the headwinds; removes the explicit mention that the pandemic is still suppressing inflation. |
There is a stark shift in the characterization of price stability. In March, the Fed was concerned with inflation being too low ("continues to run below 2 percent"). By April, the Fed acknowledges that inflation "has risen." However, the strategic insertion of the word "transitory" is the most important addition. This signals that while the Fed sees the price increases, it does not yet view them as a structural threat that requires a change in policy.
The tone regarding the real economy has shifted from cautious optimism to confidence. The phrase "turned up recently" (March) is replaced by "strengthened" (April). Furthermore, the admission that the hardest-hit sectors "have shown improvement" suggests the recovery is broadening, reducing the urgency for emergency-level support.
The forward guidance regarding the federal funds rate and Quantitative Easing (QE) remains identical. Despite the strengthening economy and rising inflation, the Committee refused to tweak the "thresholds" for lifting rates. This indicates that the Fed is prioritizing the "maximum employment" leg of its mandate over the "price stability" leg for the time being.
The Committee has shifted Mildly Hawkish, though it remains firmly in an accommodative regime.
While the policy action (rates and QE) remained unchanged, the narrative shifted. By acknowledging that inflation has risen and that the economy has "strengthened" rather than just "turned up," the Fed is beginning to build the case for an eventual exit from emergency policy. However, the use of the word "transitory" acts as a "dovish hedge," ensuring markets do not price in immediate rate hikes. Overall, the statement reflects a transition from "crisis management" to "recovery monitoring."