MNI REVIEW: FOMC Extends QE, Studies Further Monetary Support

--Officials Saw No Rate Increase Through Next Year

By Jean Yung

     WASHINGTON (MNI) - Fed Chairman Jay Powell on Wednesday pledged to do

"whatever we can for as long as it takes" to support the pandemic recovery, and

FOMC officials extended asset purchases at the current pace or faster and

debated more forceful forward guidance. 

     Policymakers also issued their first economic projections since the start

of the year, showing consensus around a rebound beginning in the second half and

lasting through 2022, supported by rates at the current 0% to 0.25% range. Only

two of 17 FOMC members saw rates rising by 2022, with a majority expecting that

some of the 20 million displaced workers will still be struggling to find jobs.

     While Powell expressed optimism the U.S. will see "a full recovery over

time," he also said there will likely be "millions of people who don't get to go

back to their old job -- and there may not a job for them for some time."

     Even if the economy bounces back faster than expected, "we're not thinking

about raising rates or thinking about thinking about raising rates," Powell

said.

     --YCC 'OPEN QUESTION'

     Having tapered asset purchases every week since March, the FOMC shifted to

a new policy of continuing purchases "at least at the current pace" of USD80

billion of Treasuries and USD40 billion of agency MBS per month "over coming

months." 

     "There have been gains in market function although it's not fully back to

where you would say they were in February before the pandemic arrived," Powell

said. "This is a highly fluid situation and we're not taking those for

granted... those purchases are clearly also supporting highly accommodative

financial conditions, and that's a good thing." 

     Targeting rates along the yield curve like Japan and Australia would

"remains an open question," for the Fed, Powell said. Analysts see no immediate

need for the Fed to launch yield curve control as yields remain low. 

     --PERMANENT DAMAGE

     A top FOMC worry is permanent damage that leaves the Fed's dual mandate out

of reach, especially job market slack that keeps inflation slower than the 2%

goal. Officials expect headline PCE inflation to end the year at 0.8% before

rising to 1.6% next year and 1.7% the year after. 

     "We have to be humble about our ability to move inflation up, particularly

when unemployment is going to be above most estimates of the natural rate --

certainly above the median in our SEP -- well past the end of 2022," Powell

said.  

     More support on the fiscal side could lead to "better results sooner,"

Powell said, though he declined to discuss specific proposals. "The question is

that group of people that can't go back to work quickly," he said. "We want

those people back in the labor force and getting jobs, and they're going to need

possibly, probably need further support." 

     "It's possible we will need to do more, and it's possible Congress will

need to do more," he said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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