**MNI POLICY: Dec FOMC Minutes: On Hold; May Adjust IOER Higher>

--Officials Favor Holding Rates, Worried About Inflation Expectations

--Fed Could Move Away from Active Repo Operations By Mid-Jan

--SOMA Manager Suggests Raising IOER, Flags Buying Treasury Coupons

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve officials in December 

anticipated keeping rates steady in a 1.50% to 1.75% range as they 

assess the full effects of the three rate cuts last year and 

amid continued global uncertainty, according to the minutes of the 

latest FOMC meeting released Wednesday. 

     Weakness abroad and subdued global inflation pressures continue 

to weigh on the U.S. outlook, and despite a strong labor market, 

inflation remains muted with a few officials concerned that longer run 

inflation expectations are already too low, the minutes said. 

     "Participants regarded the current stance of monetary policy as 

likely to remain appropriate for a time as long as incoming information 

about the economy remained broadly consistent with the economic outlook.  

Of course, if developments emerged that led to a material reassessment 

of the outlook, the stance of policy would need to adjust in a way that 

fostered the Committees dual-mandate objectives," the minutes said. 

     Meanwhile, having conducted on average $215 billion in repo 

operations per day over the last weeks of 2019, the New York Fed said it 

expects to gradually transition away from active repo operations 

starting in mid-January. Still, some repos might be needed through the 

tax payment deadline in April, it said. 

     The System Open Market Account manager also flagged the possibility 

that the Fed will need to raise the IOER rate and, separately, to 

enlarge the universe of securities it buys for "reserves management 

purposes" to include longer-dated Treasuries under certain conditions. 

     The following are other key points from the minutes of the 

December FOMC meeting: 

     --If the Fed's Treasury bill purchases have a "larger effect" on 

liquidity in the Treasury bill market, the Fed "could consider" buying 

Treasury coupons. That would not affect broader financial conditions or 

the stance of monetary policy, the SOMA manager said. 

     --As reserves remain ample, it "may become appropriate to implement 

a technical adjustment" to the IOER rate toward the middle of the 

target range, and the overnight reverse repo rate to the bottom of the 

target range, the SOMA manager said. There was no further comment from 

Fed officials on the subject. 

     --The New York Fed has communicated to its customers that it plans 

to adjust the foreign repo pool rate to be equal to the overnight 

reverse repo rate to help reduce activity in the pool and increase the 

level of reserves. 

     --The FOMC agreed that holding rates steady will cushion the 

economy from global developments and help return inflation to its 2% 

objective. A few officials even suggested revising language in the 

policy statement that refers to inflation "near" 2% in favor of language 

that refers to returning inflation to the symmetric 2% objective, lest 

it be misinterpreted to signal comfort with inflation below 2%. However, 

others thought "near 2%" included modest deviations to either side of 

the goal. Underscoring the concern over low inflation, the minutes said 

one takeaway from the Fed Listens events of the past year was that the 

FOMC needs to better communicate to various communities its commitment 

to 2% and back it up with actions and results. 

     --The FOMC will not reaffirm its Longer Run Goals and Monetary 

Policy Strategy statement at the January meeting, instead choosing to 

revisit it closer to the conclusion of its framework review mid-year. 

--MNI Washington Bureau, Tel: +1 202-371-2121; email: dcoffice@marketnews.com

     ** MNI Washington Bureau: 202-371-2121 ** 

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