Fed Officials Discussed Asset Purchase Program at November Meeting -- Update
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
"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
"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
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
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
The Fed wanted to maintain the lending programs as a backstop in
the face of continued threats posed by the coronavirus
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,"
Write to Nick Timiraos at email@example.com
(END) Dow Jones Newswires
November 25, 2020 14:58 ET (19:58 GMT)
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