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Fed opens first policy meeting of Biden era

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Just a week into the administration of US President Joe Biden, the Federal Reserve opened on Tuesday its first policy meeting of the year with an eye on the trajectory of the US recovery.

As the world's largest economy endures the world's worst coronavirus outbreak and the death toll tops 420,000, the Fed's policy-setting Federal Open Market Committee (FOMC) has pledged to keep lending rates near zero for an extended period.

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But markets will focus on the final statement to come out after the meeting and Federal Reserve Chair Jerome Powell's press conference on Wednesday to see if policymakers remain optimistic about US growth prospects.

While vaccines have raised hopes about a solid recovery, snags in distribution and a new wave of infections could dampen enthusiasm among businesses and consumers, even as stock markets have hit successive records.

"The Fed has been consistent in the view that the course of the virus determines the course of the economy. The surge in cases, hospitalizations, and fatalities since the last meeting has been staggering," said Grant Thornton economist Diane Swonk.

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But Biden has proposed a $1.9 trillion rescue package that the IMF estimates would boost economic growth by 5 percent over three years.

Powell has repeatedly highlighted the need for government spending to take over the role of supporting the economy from the central bank.

And it will be Powell's predecessor, newly minted Treasury Secretary Janet Yellen, who will be taking the lead in trying to push that stimulus package through Congress.

"The Fed and Treasury will need to work closely to limit damage to the economy going forward. I can’t imagine a closer and more collegial alliance than that between Powell and Yellen," Swonk said.

Even as the Fed takes more of a back seat, Powell faces the prospect of managing monetary policy under Biden that is unlikely to subject him to the barrage of Twitter attacks and insults he was subject to, sometimes daily, under Donald Trump.

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