FOMC Minutes: Continued review of policy discussing potential changes to longer-run goals


The FOMC Minutes of July meeting showed on Wednesday that members continued the review of the monetary policy strategy, discussing potential changes to the statement of longer-run goals.

The FOMC further noted that participants agreed that refining the statement was warranted in light of "fundamental changes" in the economy over the past decade, including low-interest rates and "persistent" disinflationary pressure.

Market reaction

The US Dollar Index showed no immediate reaction to the FOMC Minutes and was last seen gaining 0.4% on the day at 92.68.

Additional takeaways as summarized by Reuters

"Revised long-run statement of goals could make monetary policy clearer and help households and businesses make better decisions, helping fed meet its inflation and employment goals."

"Staff assumed additional fiscal stimulus would be enacted beyond that anticipated in June but positive effect on economic outlook was outweighed by risks of increasing spread of the virus."

"Policymakers saw a sizable rebound in consumer spending, less improvement in the business sector."

"Participants noted economy and jobs had picked up somewhat but that path of the economy would depend on the highly uncertain path of the virus."

"In light of uncertainty about the pandemic, staff still judged a more pessimistic outcome as no less plausible than the baseline forecast."

"Participants noted a particularly strong rebound in consumer spending supported by cares act but that activity had likely slowed as virus spread further."

"Most policymakers judged yield caps and targets would likely provide only modest benefits in the current environment."

Participants saw less improvement in the business sector as businesses faced uncertainty, supply chain disruptions and elevated employee absenteeism."

"Most policymakers saw costs to yield caps, targets, including the rapid expansion of balance sheet, difficulties in design and communication."

"Participants said that rebound in jobs had likely slowed and that any further substantial improvement in the labor market would hinge on a broad and sustained reopening."

"Many policymakers judged that yield caps and targets not warranted now but should remain an option for the future."

"Staff assumed an alternative scenario with an acceleration of coronavirus outbreak would lead to more severe disruption of economic activity with lower real GDP and inflation."

"A number of participants said that providing greater clarity on the likely future path of rates would be appropriate at some point."

"A number of participants noted that additional fiscal aid would be important in supporting families harder hit by the virus, particularly among blacks, Hispanics and women concentrated in lower-wage service sector jobs."

"Participants generally saw the overall effect of the pandemic on prices as disinflationary."

"Many participants said it might become appropriate to talk about asset purchases in terms of fostering accommodative financial conditions, supporting economic recovery."

"Several participants suggested that additional accommodation could be required to promote economic recovery, return inflation to 2%."

"Participants said risks included additional waves of virus spread that could cause credit markets to tighten again, as well as the loss of fiscal support for households, businesses, local government."

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