During a meeting earlier this month, Federal Reserve officials took part in an extensive discussion of their asset purchase program, with some members saying they expected to implement several changes.
The Fed released a few minutes from its November 4-5 policy meeting on Wednesday. Officials at that meeting voted to keep the benchmark short-term orrow rate close to zero.
Market participants look at where policymakers will expand or streamline the asset purchase program, with the Fed currently buying 120 120 billion a month in treasuries and mortgage-backed securities. The Fed may choose to increase purchases or lengthen those bonds.
Members said the current pace of purchases is helping to adapt to financial conditions, while they noted that changes could be implemented if needed. The debate, however, did not include a specific date for the change, only that it could happen “quite soon.”
“Participants noted that the committee could provide more housing, if appropriate, by increasing the pace of purchases or relocating its treasury purchases without increasing the size of its purchases.” “Alternatively, the committee could provide more suitable accommodation by purchasing similar motions and compositions over a longer horizon.”
Since the meeting, several Fed officials have revealed that the meeting included an in-depth discussion on asset purchase. An entire section of minutes is devoted to those discussions.
Officials from the Federal Open Market Committee also expressed concern about the pace of economic recovery, noting that growth was still good at a pace before the coronavirus epidemic hit in March.
During a news conference after his meeting, Fed Chairman Jerome Powell said he felt the Fed still had a lot of “ammunition” policy and that the committee was “committed to using these powerful tools to support the economy.”
Since then, the Fed has learned that it is launching 2021 without some weapons in its arsenal, as Treasury Secretary Steven Munuchin has instructed the central bank to return the collateral funding received for multiple epidemic-period lending programs. These include corporate bond purchases, loans to state and municipal governments, and a main street lending program for small and medium-sized businesses.
Members suggested that “over the coming months” the Fed should provide more details on what it will take to streamline the program, which has taken the central bank’s balance sheet $ 7 trillion as part of efforts to support the economy through the coronavirus epidemic.
Officials favor a results-oriented approach that takes purchases to achieve economic goals. The committee also noted that it would tie the buy-in with the interest rate with the possibility that the bond-buying program would close before the rate hike.
Market participants are expecting a possible Fed announcement at the December meeting.
Looking at the economy, Fed officials said they are assuming no financial support package will be implemented by the end of the year. However, they said overall households have saved enough money to support consumption by the end of the year. They also noted that tax receipts did not make the situation in most states and municipalities as bad as some feared.
However, they said the risks of the economic forecast are “tilted to the negative, with recent data likely to increase the likelihood of a recurrence of the disease.”
Members noted that “economic activity and employment continued to recover but at the beginning of the year they were below their levels.”
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