© Reuters. By Yasin Ebrahim
Investing.com – Federal Reserve policymakers agreed that current monetary policy measures were appropriate to support the economic recovery as the risks to the outlook remained tilted to the downside, the minutes of the Fed’s September meeting showed on Wednesday.
“Fiscal policy measures, along with the support from monetary policy and the Federal Reserve’s liquidity and lending facilities, were expected to continue supporting the second-half recovery, although the recovery was forecast to be far from complete by year-end. The staff’s forecast assumed the enactment of some additional fiscal policy support this year; without that additional policy action, the pace of the economic recovery would likely be slower.”
At its previous meeting, the Fed held interest rates steady in the range of 0% to 0.25% and signaled no hikes through 2023.
The of the meeting showed there was a consensus among members to keep policy accommodative until the economy has achieved maximum employment and inflation is on track to moderately exceed 2% for some time. The minutes noted, however, that inflation is not expected to meet the central bank’s target any time soon. “With the more-accommodative monetary policy assumed in the current forecast, which reflected the recent consensus statement, inflation was projected to moderately overshoot 2 percent for some time in the years beyond 2023.”
The minutes come a day after hopes that U.S. lawmakers will roll out broad-based stimulus sooner rather than later were dealt a blow. President Donald Trump on Tuesday rejected U.S. House Speaker Nancy Pelosi’s $2.4 trillion stimulus proposal, though vowed to pass a “major” stimulus should he emerge victorious in the upcoming election. Trump, however, said he was ready to sign separate stimulus packages.
Federal Reserve chairman Jerome Powell on Tuesday warned Congress over the economic fallout of delivering a stimulus package that was too small.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in a speech at a virtual annual meeting held by the National Association for Business Economics. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”
The Fed’s September meeting also marked the central bank’s adoption of its new inflation measure allowing prices to overshoot its 2% target for a period of time. Fed members supported the shift outcome-based guidance, though some raised concerns the enhanced forward guidance could limit the central bank’s flexibility and pressure yields.
“Several participants noted that while they agreed it was appropriate to incorporate key elements of the consensus statement into the postmeeting statement, they preferred to retain forward guidance similar to that provided in recent FOMC statements. These participants judged that it would likely be appropriate to maintain an accommodative stance of policy for some time in order to foster outcomes consistent with the Committee’s revised consensus statement,” the minutes noted.
But with longer-term interest rates already very low, there did “not appear to be a need for enhanced forward guidance at this juncture or much scope for forward guidance to put additional downward pressure on yields.” These participants were concerned that forward guidance that involved the target range for the federal funds rate remaining at the effective lower bound until employment and inflation criteria were achieved could limit the Committee’s flexibility for years,”
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