The Fed will not currently have any proceeds from the U.S. Treasury

The Federal Reserve will not introduce a new tool known as yield curve control, but said it will keep all its options open in the future.

In minutes with details of the Feb. 29 meeting of the Federal Open Market Committee, Fed officials appeared cool following a World War II policy of buying U.S. treasuries until proceeds reached targets.

One reason: yields are already historically low across the curve. At the time of the meeting, the yield on the US 10-year Treasury (^ TNX) was below 60 basis points and the yield on the US 30-year Treasury (^ TYX) below 125 basis points.

FOMC members, who at that meeting chose to keep interest rates at almost zero, also flagged concerns about the consequences of a “too rapid widening of the balance sheet” under a policy of controlling the yield curve. Questions also arose about how the Fed would come up with such a strategy.

“In light of these concerns, many participants judged that revenue caps and targets were not guaranteed in the current environment, but should remain an option that the commission could reassess in the future if circumstances change markedly,” the Fed minutes read. , who were released on Wednesday.

The central bank had previously floated the idea of ​​targeting US debt over the medium term (such as the 3-year-old and 5-year-old), a version of control on the yield curve deployed by the likes of the Reserve Bank of Australia. But the minutes of July suggest that the Fed wants to prioritize its communications policy instead of further engaging itself in U.S. government debt.

The Fed has also regained interest in following the European Central Bank and the Bank of Japan in their use of negative rates.

The July discussion on yield control curves has been a marked development since the June 10 meeting of the Fed, in which Fed officials debate the pros and cons of implementing such policies and agree to “further analysis”. to celebrate. “

With the tool likely at the moment for sideline, the Fed has focused on forming some plan for advancement.

The central bank has already reduced rates to almost zero and promised to extend the balance sheet through purchases without a maximum. But markets are still in the dark about how long the Fed will promise to keep borrowing costs low and provide accommodation through its quantitatively required policy.

The July minutes detailed interest in both outcome-based forecasting (where the Fed promised to keep rates close to zero until inflation and / or unemployment targets) and calendar-based guidance (where the Fed promised to keep rates close to zero until a specific date).

“A number of participants note that providing greater clarity regarding the likely path of the target for the federal fund rate would be appropriate at some point,” the minutes read.

FOMC members also pushed the idea of ​​linking the pace of their ongoing asset purchases to the communication of those goals as well.

But forwarding may not be ready for the Fed’s next FOMC announcement on September 16. The July minutes suggest that the Fed would first pack its pre-COVID review of its longer-term goals and monetary policy strategies to “guide the future and policy actions and communications of the Committee.”

Capital Economics wrote on Wednesday that the minutes seem to increase an average inflation-targeting strategy, with the Fed periodically tolerating inflation exceeding its 2% target.

Fed officials will remain in focus as the central bank holds its annual monetary policy symposium next week on 27 and 28 August. The meeting, which normally takes place every year in Jackson Hole, Wyoming, will be held voluntarily due to COVID-19 and will be broadcast live to the public for the first time.

@bcheungz.“data-reactid =” 37 “>Brian Cheung is a Reporter covering the Fed, Economy and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.