U.S. markets closed
  • S&P 500

    +73.47 (+1.95%)
  • Dow 30

    +572.20 (+1.85%)
  • Nasdaq

    +196.65 (+1.55%)
  • Russell 2000

    +45.29 (+2.11%)
  • Crude Oil

    +0.19 (+0.29%)
  • Gold

    -0.30 (-0.02%)
  • Silver

    +0.01 (+0.03%)

    -0.0056 (-0.47%)
  • 10-Yr Bond

    +0.0040 (+0.26%)

    -0.0059 (-0.42%)

    +0.3620 (+0.34%)

    +1,908.20 (+3.92%)
  • CMC Crypto 200

    +39.75 (+4.21%)
  • FTSE 100

    -20.36 (-0.31%)
  • Nikkei 225

    -65.78 (-0.23%)
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Fed holds rates at near-zero, ends one-month repo operations

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Yahoo Finance’s Alexis Christoforous, Adam Shapiro and Brian Cheung discuss the latest from the Federal Reserve.

Video Transcript

BRIAN CHEUNG: Well, Alexis, the Federal Reserve holding interest rates at near zero. Not necessarily a surprise on that front. With regards to quantitative easing, they still commit to keeping up that $120 billion a pace of asset purchases until there's substantial further progress towards its dual mandate. But in the policy statement, there were a number of little tweaks and changes that are worth pointing out.

They added a new sentence that says, quote, "The pace of the recovery and economic activity and employment has moderated in recent months with weakness concentrated in the sectors most adversely affected by the pandemic." That replaces language from the December meeting that had described, at the time, that economic activity and employment remain well below the levels at the beginning of 2020. But still noticeable because the Federal Reserve is making that change, despite the fact that there's still 9.8 million fewer payrolls than there were pre-pandemic.

But a few other things I want to walk you through in that Fed statement. They did note that the course of the economy is going to depend on where the virus goes, but they added specific language saying that they're going to watch, quote, "progress on vaccinations." Obviously, that's a big deal, at least in the first half of this year, as the Fed looks to what could be a pretty good strong recovery in the second half of this year. At least, that's what Fed Chairman Jay Powell messaged in the last meeting.

And one last thing I want to call your attention to is that the Federal Reserve made a small tweak with regards to the repo market operations out of the New York Fed. It seems like quite a long time ago that we were worried about short-term dollar funding markets. But the Federal Reserve saying that things are going at least quite well in those short-term markets. So because of that, they're going to be paring back on the one-month operations that they had started in the midst of this crisis. So that's something that's a directive for the New York Fed.

But broadly speaking, not much change in the statement. Again, the Federal Reserve holding interest rates near zero. It'll be interesting to see what types of color the chairman will provide in the press conference in about 29 minutes or so. There were no summary of economic projections, so really just that statement that we had at this time. Alexis.

ADAM SHAPIRO: Jay Powell, I think a week ago, said, quote, "We will communicate very clearly to the public and will do so well in advance before actively considering any tapering of asset purchases." There's nothing in this statement that says they're even thinking about-- thinking about communicating what could come next year, right?

BRIAN CHEUNG: Yeah, absolutely. And I think when it comes to the quantitative easing communication, we have to understand that this is a real tightrope that the chairman is going to be walking. On one hand, you look at what's happening with bond yields, with the 10-year going as high as 118 basis points in the middle of this month. And you wonder, are those longer term interest costs that are rising a concern for the Federal Reserve?

Now, on one hand, the Federal Reserve could offer more guidance that could push some of that longer term interest rate down. But you also want to avoid the situation in 2013, where Ben Bernanke memorably triggered that taper tantrum by preeminently discussing the idea of tapering before markets were maybe ready for that.

So when he does approach the podium at 2:30, I think that the tone that he's going to take is going to be kind of vague in saying, we don't want to offer too much right now, but we're going to offer you more clarity when the time is right. I think for the Fed chairman's part, he's been pretty clear in saying that we're a bit far from the Fed's dual mandate right now, especially with their tolerance of a higher inflation target. So I think he's probably going to punt if he is asked that in about 27 minutes or so.