The U.S. Federal Reserve could “remain in waiting mode” even after Friday’s bullish employment report, according to a new report from Pantheon’s Ian Shepherdson. Further, low inflation could keep the Fed on hold.

  • Report Friday from U.S. Department of Labor showing a 355,000 increase in nonfarm payrolls in February could be “just a taste of what’s to come over the next couple of months” as the coronavirus vaccine gets distributed further and the economy heats up, Shepherdson, Pantheon’s chief U.S. economist, wrote Sunday. 
  • March payrolls increase could hit 1 million, Shepherdson wrote: “A smooth exit from the pandemic ought to be followed by a sustained acceleration in the numbers.”
  • “In the meantime, we think the Fed will remain in waiting mode.”
  • Minutes from January FOMC meeting did not reference any plans to change policy based on a steepening of the bond-yield curve, Shepherdson noted: “The idea of increasing the weighted average maturity of asset purchases appears not even to have been discussed at the January FOMC meeting,” Shepherdson wrote. 
  • While Shepherdson didn’t reference bitcoin, the upshot is that cryptocurrency traders betting on an expansion of the Fed’s monetary stimulus might be disappointed in the near term. Some investors in both cryptocurrency circles and traditional markets say bitcoin could hold its worth if trillions of dollars of central bank money printing pushes down the value of government currencies including the U.S. dollar. 
  • On Friday, Treasury Secretary Janet Yellen said in an interview with "PBS NewsHour" that “market participants are seeing a stronger recovery,” but that she doesn’t think most investors are expecting inflation to rise above the Federal Reserve’s 2% objective anytime soon. 
Chart shows the year-over-year percent change in core PCE and trimmed mean PCE (an alternative measure used by the Fed). Both inflation rates remain below the 2% threshold.
Source: St. Louis Fed
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