MNI POLICY: Fed Saw Dec Guidance as Flexible, Open to More QE

Federal Reserve officials were modestly upbeat about the economy but remained open to further strengthening QE to support growth if needed, minutes to the central bank's December meeting showed.

"Some participants noted that the Committee could consider future adjustments to its asset purchases—such as increasing the pace of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining maturities," the minutes said.

The Fed refrained from adding any concrete stimulus at its meeting last month, opting instead to offer new guidance on the pace of asset purchases. It has committed to buying at least USD120 billion of bonds a month until the economy makes "substantial further progress" towards maximum employment and stable prices.

The minutes said participants saw the guidance as sufficiently flexible to allow for further monetary easing if needed.

"If progress toward the Committee's goals proved slower than anticipated, the new guidance relayed the Committee's intention to respond by increasing monetary policy accommodation through maintaining the current level of the target range of the federal funds rate for longer and raising the expected path of the Federal Reserve's balance sheet," the minutes said.

Still, policy makers were fairly upbeat on the economic outlook despite worries about the near-term hit from a surge in Covid infections and deaths.

"Participants observed that the economy continued to show resilience in the face of the pandemic, though it was still far from having attained conditions consistent with the Committee's dual mandate," the minutes said.

"The positive vaccine news received over the intermeeting period was viewed as favorable for the medium-term economic outlook."