FOMC Minutes: Pessimistic view of US economy
|FOMC members at July 28-29 meeting voice concern on the depth of virus economic fallout. Members are skeptical about yield curve control, the setting of longer-term rates through Treasury purchase and sales, Joseph Trevisani, an analyst at FXStreet reports.
Key quotes
“Members were duly pessimistic expressing concerns that the coronavirus would continue to prevent a robust recovery and could possibly present a danger to the financial system. They voted to keep the fed funds rate at its 0.25% upper target and to maintain their purchase and loan programs.”
“Chairman Powell and other Fed officials have said many times since the pandemic began that US banks and financial institutions are in strong shape. Yet some committee members worried that if the virus continued to spread that might produce ‘more adverse’ scenarios which could put the increased risk on the financial system. A number of members also expressed concern about the rising levels of public debt.”
“Though much discussed in the business media as the next logical step if the current interest rate and fiscal policies fail to revive the economy it did not meet with board favor. ‘A majority of participants commented on yield caps and targets…as a monetary policy tool. Of those participants…most judged that yield caps and targets would likely provide on modest benefits in the current environment…’ and ‘pointed to potential costs associated with yield caps and targets’.”
“The Committee’s forward guidance on the fed funds rate ‘appeared highly credible and longer-term interest rates were already low.’ Members noted that ‘providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point’.”
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