MNI POLICY: Fed Says Guidance Isn't Pledge for Specific Path

Federal Reserve policymakers at last month's policy meeting said even an economy struggling with Covid-19 had enough momentum to refrain from offering even stronger forward guidance.

Minutes from the September gathering showed a focus on how to communicate changes to the Fed's guidance on the future path of interest rates. "Participants generally noted that outcome-based forward guidance for the federal funds rate of this type was not an unconditional commitment to a particular path," the Fed report said.

The report did little to change the widespread perception that Fed policy is on hold for the foreseeable future.

Fed officials were surprised by the strength of the initial rebound from a historic second quarter slump, but still leery about the pace of further progress, the minutes showed.

PERMANENT LAYOFFS?

Some officials "judged it as less likely for future job gains to continue at their recent pace, because a greater share of the remaining layoffs might become permanent," the minutes said.

The report also shed some light on why the Fed's forward guidance, which emphasized the central bank's desire to return to full employment as well as its commitment to consistently hit its 2% inflation target, was not more specifically tied to economic indicators.

Some participants thought that "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," the minutes said.

The Fed's new guidance states that the Fed expects it will be appropriate keep rates at zero "until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time."