• In the first Federal Open Market Committee’s (FOMC) meeting of 2020, participants judged that the “current stance of monetary policy was appropriate to support sustained expansion of economy activity” and that the current stance will “likely remain appropriate for a time” as long as incoming data was broadly consistent with the economic outlook.
  • Participants noted that the labor market remained strong and unemployment low. Consumption was growing at a moderate pace, but business investment and exports were weak and inflation was running below the two percent target. FOMC members believed that holding rates steady in the range between 1.5% and 1.75%, should allow the economic expansion to continue and inflation to return to target.
  • Although participants were “cautiously optimistic” on trade developments (i.e. USMCA and phase-one deal with China), several participants thought the impact of the trade agreement with China would be limited and trade uncertainty would likely remain elevated as it “would still leave a large portion of tariffs in place.”
  • As expected, the coronavirus entered the FOMC discussion. Members judged it to be a key uncertainty in the global growth outlook and agreed that it “warranted close watching.”
  • Participants also deliberated on the price-stability objective. While members thought that the current degree of monetary stimulus was useful in returning inflation back to target, some suggested that letting inflation run above target for a period would be consistent with the FOMC’s long-run inflation objective.
  • Finally, the Committee stated that the Fed will continue purchasing treasury bills until the second quarter of 2020, to maintain “ample reserve balances at or above the level” in early September 2019.

Key Implications

  • January’s meeting minutes showed that, despite the emergence of the coronavirus risk, FOMC participants were, for the most part, comfortable in keeping rates steady. The Committee leaned on still strong labor market and decent growth in consumption as the main positives in the economy. Trade developments were also cautiously received, but many members remained skeptical that they would provide a material boost to the economy.
  • Another key takeaway from the minutes was that participants saw tentative signs of stabilization in global growth. If the coronavirus knocks this outlook off-course, the Fed will have to revisit its growth projections which may have a material impact on its current decision to hold rates unchanged for a time.
  • In the base case, the Fed will likely look through the current shock from the coronavirus as temporary. However, if it lasts longer, it may have to provide further monetary support, especially in the context of a struggling manufacturing sector.


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