By Nick Timiraos 

Federal Reserve officials this month discussed ways to provide more concrete guidance about their plans to continue purchases of Treasury and mortgage-backed securities.

Minutes of the Nov. 4-5 meeting released Wednesday showed officials also discussed ways that those purchases could be changed to provide more stimulus to the economy, if needed. But they didn't indicate any imminent changes in that direction.

Since June, the Fed has been buying $80 billion a month in Treasurys and $40 billion in mortgage securities, net of redemptions, and its rate-setting committee said in its policy statement that those purchases will continue "over coming months."

"Most participants judged that the committee should update this guidance at some point," using language linking the time frame for asset purchases to economic conditions, the minutes said.

In September, the Fed provided similar guidance laying out three conditions that would need to be met before it raised interest rates from near zero. The Fed said it would hold rates at that level until the labor market is healed, inflation hits 2% and inflation is projected to run moderately above 2%.

Last month, officials said it would be important for the guidance around asset purchases to be consistent with the September guidance around interest rates "so that the use of these tools would be well coordinated, " the minutes said.

Officials have considered ways they could provide more support for the economy by adjusting those purchases or providing more guidance about how long they might continue to buy assets.

"We may reach a view at some point that we need to do more on that front, " said Fed Chairman Jerome Powell at a Nov. 5 news conference. "We understand that there are a number of parameters that we have where we can shift the composition, the duration, the size, the life cycle of the program."

But he indicated comfort for now with the current program, which he described repeatedly as large.

Fed officials are navigating an especially uncertain outlook that is clouded by the risk that an economic recovery decelerates in the winter months amid rising coronavirus cases. At the same time, positive developments about vaccine trials raise the prospect of a stronger rebound later in 2021.

The Fed's next scheduled policy meeting is Dec. 15-16.

Analysts have been looking for clues that the Fed might specify that they will condition their purchases on economic outcomes, as they did at their September meeting for their short-term rate when they laid out thresholds that would warrant an end to holding rates near zero.

"Going forward, as we watch how the economy is evolving, how the outlook is evolving, we can think about any adjustments we want to make on those purchases," New York Fed President John Williams said in an interview Tuesday. "I think they're serving their purposes really well right now."

Another option might be to provide additional support by adjusting the composition of those purchases to target longer-term Treasury yields, as they did in their 2012-14 asset-buying program.

But several Fed officials have said the low level of long-term Treasury yields makes this unnecessary. And Mr. Powell said the current program, due to its larger size, was pushing down longer-dated yields even without explicitly targeting them.

Central banks took aggressive actions earlier this year after the virus upended daily life and forced curbs on economic activity with no precedent in peacetime. The Fed cut its benchmark rate to near zero in March and bought tens of billions of Treasurys and mortgage securities per day to unclog dysfunctional markets. It gradually slowed the pace of those purchases until June, when it fixed the monthly volumes at their current level.

The Fed also unveiled an array of emergency-lending programs in the spring in partnership with the Treasury Department, which provided $195 billion in money set aside by Congress to backstop loan losses.

Last week, Treasury Secretary Steven Mnuchin said the programs were no longer needed, that the money would be better spent on other aid that Congress hasn't agreed to approve and that he lacked the authority to extend the programs beyond December -- provoking an unusual split with the Fed, which had pressed for an extension.

The Fed wanted to maintain the lending programs as a backstop in the face of continued threats posed by the coronavirus pandemic.

Mr. Williams said Tuesday those programs had been extremely effective in rehabilitating markets for corporate, consumer and municipal borrowing. "If we did see a need to use those kinds of facilities again, we could restart them if that was appropriate," he said.

Write to Nick Timiraos at


(END) Dow Jones Newswires

November 25, 2020 14:58 ET (19:58 GMT)

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