Federal Reserve Building Marriner S. Eccles in Washington, DC
Photographer: Erin Scott / Bloomberg
Photographer: Erin Scott / Bloomberg
Federal Reserve officials unanimously supported keeping the asset purchase pace stable when they met last month, with some open to “future adjustments” if necessary.
“All participants thought it would be appropriate to continue these purchases at least at the current rate, and almost all preferred to maintain the current composition of purchases”, according to The minutes of the December 15 to 16 meeting were published on Wednesday. “Some participants indicated that they were open to considering buying Treasury bills over longer periods.”
The Federal Open Market Committee kept interest rates close to zero and reinforced its commitment to purchase securities at the meeting, promising to maintain a $ 120 billion monthly purchase pace until there is “substantial progress” toward its investment goals. employment and inflation.
“Some participants noticed that the committee could consider future adjustments to its asset purchases – such as increasing the pace of bond purchases or weighing Treasury bond purchases against those with longer remaining maturities – if such adjustments were considered appropriate, “said the minutes. .
President Jerome Powell described the new orientation as “powerful”, although both lawmakers and investors have struggled to agree on what would trigger a gradual reduction in asset purchases. Cleveland Fed President Loretta Mester said this week that did not expect a reduction in asset purchases until 2022, while Atlanta Fed chief Raphael Bostic said the reduction could occur this year, if the distribution of the vaccine improves the prospects.
“It doesn’t look like there was much energy to make a change,” Stephen Stanley, chief economist at Amherst Pierpont Securities. “I have doubts that we will see adjustments in the composition of purchases, unless the long end of the yield curve is perceived as a higher spiral out of control.”
‘Broad, qualitative’
On what they mean by “substantial additional progress”, officials emphasized that this judgment would be “broad, qualitative and not based on specific numerical criteria or limits”.
”Several participants noticed that, once this progress has been achieved, a gradual reduction in purchases could begin and the subsequent process could generally follow a similar sequence to that implemented during the 2013 and 2014 large-scale purchasing program ”.
The FOMC’s December 16 The statement states that “economic activity and employment continued to recover, but remain well below the levels at the beginning of the year”. Its quarterly projections for the economy showed some improvement compared to September.
The minutes showed that the authorities discussed the impact of the launch of the Covid-19 vaccines, although an increase in infections would likely further slow the economy in the coming months.
‘Positive’ vaccines
“However, the positive news about vaccines received during the period between meetings was considered favorable for the medium-term economic outlook.”
The US central bank lowered its benchmark interest rate to almost zero in March at the start of the coronavirus pandemic and accelerated crisis-era bond-buying programs to inject liquidity into the financial system and maintain control over interest rates. long term.
Authorities have signaled that they are likely to keep rates close to zero at least until 2023.
At last month’s meeting, they predicted that downward inflation pressures would “ease” next year, although a couple suggested that the technology disruption and the pandemic-induced restrictions on companies’ pricing power could remain in control. about prices.
The minutes noticed that seven participants – five more than in September – expected overall inflation to be above the committee’s 2% target in 2023, while the team predicted that a modest overtaking would continue “for some time in the years after 2023”.
– With the help of Catarina Saraiva, Craig Torres, Rich Miller and Matthew Boesler
(Updates with the analyst’s reaction in the sixth paragraph.)