The members of the Federal Open Market Committee at their most recent meeting reaffirmed that the central bank will maintain flexible policy well into the future, according to the minutes of the meeting released on Wednesday.
With the economy continuing to rid itself of the effects of the Covid-19 pandemic, the committee, which sets the monetary policy for the Federal Reserve, has kept the policy unchanged.
This meant keeping benchmark short-term loan rates close to zero and maintaining a minimum of $ 120 billion in asset purchases each month.
In a discussion of the Fed’s asset purchase program and interest rate policy, the minutes indicated little chance of change soon.
“Participants noted that economic conditions were currently far from the Committee’s long-term goals and that the policy stance should remain accommodative until those goals are achieved,” said the summary of the meeting. “Consequently, all participants supported the maintenance of the Committee’s current settings and results-based guidance for the federal funds rate and the pace of asset purchases.”
Prior to the meeting, investors were looking for a discussion of when the FOMC could start slowing down securities purchases, or quantitative easing. The post-meeting statement made no mention of the talks, and Fed Chairman Jerome Powell later said that the Fed would likely maintain accommodative policy.
Members noted that the QE program, which raised the Fed’s balance sheet to nearly $ 7.5 trillion, “substantially eased financial conditions and was providing substantial support to the economy”.
The deliberations take place amid concerns with central bank officials about the pace of recovery. The objective of a ‘broad and inclusive’ recovery of the labor market, in particular, is the objective of a racial, gender and income recovery.
The post-meeting statement noted that the pace of economic activity and improvements in the labor market “have moderated in recent months”. The minutes helped to broaden the Fed’s sentiment in this regard.
“With the economy still far from these targets, participants estimated that it would probably take some time for substantial progress to be achieved,” says the summary.
Since the meeting, Fed officials have been virtually unanimous in saying that they do not expect significant policy changes until further progress is made towards the central bank’s improved labor market target. Powell and others emphasized that they will not start raising interest rates to avoid inflation, but rather wait for real price pressures to appear before the policy hardens.
“In terms of gradual reduction, it is premature. We just created the guidance. We said that we wanted to see substantial progress towards our goals before modifying our asset purchase guidance,” Powell said at his news conference after the meeting.
The minutes noted that asset prices are “high” and said the vulnerabilities associated with domestic and corporate debt levels are “notable”. The authorities also said that some open and financial market mutual funds face “significant vulnerabilities associated with the transformation of liquidity”.