Federal Reserve officials were warily eyeing a surge in coronavirus cases at their Dec. 15-16 meeting, but they hoped that vaccine breakthroughs might set the stage for a strong economic rebound in 2021.
“With the pandemic worsening across the country, the expansion was expected to slow even further in coming months,” according to minutes from the gathering of the Federal Open Market Committee, released Wednesday. “Nevertheless, the positive vaccine news” was “viewed as favorable for the medium-term economic outlook.”
Central bank officials held interest rates steady at near zero at the meeting, and committed to buying up $120 billion in bonds each month “until substantial further progress has been made toward the committee’s maximum employment and price stability goals.” They have been rapidly expanding their holdings of government and mortgage-backed debt since March to keep markets calm and many types of credit cheap.
The Fed essentially sets the price of borrowed money to help to guide demand in the economy, goosing conditions when times are tough to help bolster growth and hiring. The central bank also tries to keep price increases stable at around 2 percent, though officials formally updated their policy-setting approach last year to emphasize that they would welcome slightly faster increases after years and years of weaker ones.
Minutes showed that the Fed discussed the balance sheet guidance in depth at the meeting, with “a few” remarking that the new wording signaled that the Fed could ramp up bond buying “if progress toward the committee’s goals proved slower than anticipated.”
Many analysts had expected that the Fed would shift its bond purchases toward longer-dated debt to try to eke out a bigger bang per buck, given that short-term rates are already very low, but the minutes suggest that there was little appetite for such a change. Only “a couple of participants indicated that they were open to” shaking up the composition of purchases.
The Fed’s December meeting took place as virus cases surged after Thanksgiving. Since then, the number of new cases moderated at first but then resumed their increase.
With distribution of a coronavirus vaccine beginning in the U.S., here are answers to some questions you may be wondering about:
- If I live in the U.S., when can I get the vaccine? While the exact order of vaccine recipients may vary by state, most will likely put medical workers and residents of long-term care facilities first. If you want to understand how this decision is getting made, this article will help.
- When can I return to normal life after being vaccinated? Life will return to normal only when society as a whole gains enough protection against the coronavirus. Once countries authorize a vaccine, they’ll only be able to vaccinate a few percent of their citizens at most in the first couple months. The unvaccinated majority will still remain vulnerable to getting infected. A growing number of coronavirus vaccines are showing robust protection against becoming sick. But it’s also possible for people to spread the virus without even knowing they’re infected because they experience only mild symptoms or none at all. Scientists don’t yet know if the vaccines also block the transmission of the coronavirus. So for the time being, even vaccinated people will need to wear masks, avoid indoor crowds, and so on. Once enough people get vaccinated, it will become very difficult for the coronavirus to find vulnerable people to infect. Depending on how quickly we as a society achieve that goal, life might start approaching something like normal by the fall 2021.
- If I’ve been vaccinated, do I still need to wear a mask? Yes, but not forever. Here’s why. The coronavirus vaccines are injected deep into the muscles and stimulate the immune system to produce antibodies. This appears to be enough protection to keep the vaccinated person from getting ill. But what’s not clear is whether it’s possible for the virus to bloom in the nose — and be sneezed or breathed out to infect others — even as antibodies elsewhere in the body have mobilized to prevent the vaccinated person from getting sick. The vaccine clinical trials were designed to determine whether vaccinated people are protected from illness — not to find out whether they could still spread the coronavirus. Based on studies of flu vaccine and even patients infected with Covid-19, researchers have reason to be hopeful that vaccinated people won’t spread the virus, but more research is needed. In the meantime, everyone — even vaccinated people — will need to think of themselves as possible silent spreaders and keep wearing a mask. Read more here.
- Will it hurt? What are the side effects? The Pfizer and BioNTech vaccine is delivered as a shot in the arm, like other typical vaccines. The injection into your arm won’t feel different than any other vaccine, but the rate of short-lived side effects does appear higher than a flu shot. Tens of thousands of people have already received the vaccines, and none of them have reported any serious health problems. The side effects, which can resemble the symptoms of Covid-19, last about a day and appear more likely after the second dose. Early reports from vaccine trials suggest some people might need to take a day off from work because they feel lousy after receiving the second dose. In the Pfizer study, about half developed fatigue. Other side effects occurred in at least 25 to 33 percent of patients, sometimes more, including headaches, chills and muscle pain. While these experiences aren’t pleasant, they are a good sign that your own immune system is mounting a potent response to the vaccine that will provide long-lasting immunity.
- Will mRNA vaccines change my genes? No. The vaccines from Moderna and Pfizer use a genetic molecule to prime the immune system. That molecule, known as mRNA, is eventually destroyed by the body. The mRNA is packaged in an oily bubble that can fuse to a cell, allowing the molecule to slip in. The cell uses the mRNA to make proteins from the coronavirus, which can stimulate the immune system. At any moment, each of our cells may contain hundreds of thousands of mRNA molecules, which they produce in order to make proteins of their own. Once those proteins are made, our cells then shred the mRNA with special enzymes. The mRNA molecules our cells make can only survive a matter of minutes. The mRNA in vaccines is engineered to withstand the cell’s enzymes a bit longer, so that the cells can make extra virus proteins and prompt a stronger immune response. But the mRNA can only last for a few days at most before they are destroyed.
Officials have been voicing hope that vaccine distribution, which has gotten off to a slow start in much of the United States, will pave the way for an economic rebound in the latter half of 2021. They have been clear that their outlook hinges on the success of that process and the path of the pandemic.
“The second half of the year looks much more promising because of vaccinations,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on a call with reporters this week.
But even if the rebound is remarkable, officials have been clear that they are likely to remain patient in taking support away from the economy.
Ms. Mester, who has a history of favoring higher rates than many of her colleagues, has said she probably would not be worried about 2.5 percent inflation. Her colleague Charles Evans, who is president of the Federal Reserve Bank of Chicago and a monetary policy voter this year, said during an event on Tuesday that a 3 percent price gain pace “would not be so bad.”
Presidents at 11 of the Fed’s 12 regional banks share rotating votes on monetary policy. The Federal Reserve Bank of New York president and members of the Board of Governors in Washington hold a constant vote on interest rates.
In the near term, economic weakening — rather than navigating a rapid rebound — is likely to be the main challenge confronting the Fed. Private payrolls contracted by 123,000 jobs between November and December, data from ADP showed on Wednesday. The government’s official employment report on Friday is expected to show either a marked slowing in job gains or a return to outright losses.
According to the December minutes, “Participants saw increased challenges for the economy in the coming months, as the ongoing surge of Covid-19 cases and the related mandatory and voluntary measures prompted greater social distancing and damped spending, especially on services requiring in-person contact.”
The Fed’s December meeting took place before two significant developments that could affect the economy in the short term. Late last month, Congress agreed to provide additional support to the American economy in the form of a $900 billion relief bill.
And Democrats appeared on the cusp of retaking the Senate, which could pave the way for easier passage of the priorities of President-elect Joseph R. Biden Jr., which could include additional fiscal help for firms and families.
“The Fed will welcome greater prospects of fiscal support, which most officials believe is better targeted to address challenges unique to the Covid cycle than monetary policy,” economists at Evercore ISI wrote in a research note on Wednesday.