MNI POLICY: Fed Considering Stronger QE Soon, Minutes Show

The Federal Reserve considered further easing such as introducing outcome-based forward guidance on QE soon, amid surging Covid cases and the absence of fiscal support, according to minutes of the last policy meeting.

"While participants judged that immediate adjustments to the pace and composition of asset purchases were not necessary, they recognized that circumstances could shift to warrant such adjustments," the November meeting minutes said.

The Fed's next meeting is in December and MNI has reported the central bank is considering a number of options for additional monetary easing in the absence of fiscal stimulus, including new guidance.

"Participants noted that the Committee could provide more accommodation, if appropriate, by increasing the pace of purchases or by shifting its Treasury purchases to those with a longer maturity without increasing the size of its purchases," the minutes said. A few participants also said faster asset purchases may do little with market yields already low and could bring unintended consequences in an uncertain economy.

GUIDANCE TWEAK 'FAIRLY SOON'?

While the current QE guidance has worked well, "many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon," the minutes said. "Most participants favored moving to qualitative outcome-based guidance for asset purchases that links the horizon over which the Committee anticipates it would be conducting asset purchases to economic conditions."

Officials including Chair Jerome Powell have called for a large fiscal stimulus from Congress that have gone unheeded so far, raising concerns about renewed economic deterioration as infections and hospitalizations surge, denting consumer confidence. Several officials at the November meeting expressed concerns about the limited capacity of additional monetary stimulus to engender a fulsome economic recovery.

The Fed cut the federal funds rate sharply to just above zero in March and has been buying USD120 billion of Treasury and mortgage bonds per month to support market functioning and the economic recovery.

"Most participants judged that the guidance for asset purchases should imply that increases in the Committee's securities holdings would taper and cease sometime before the Committee would begin to raise the target range for the federal funds rate, the report said. "A number of participants highlighted the view that after net purchases cease there would likely be a period of time in which maturing assets would be reinvested to roughly maintain the size of the Federal Reserve's securities holdings."