The Federal Reserve will do everything it can to prevent a lighter decline when it finally decides to reduce its bond purchases, it said on Wednesday a few minutes after the central bank’s most recent meeting.
Following a two-day session on 15-16 December, the Federal Open Market Committee voted to keep the short-term benchmark interest rate close to zero.
Markets, however, focused on discussions about the Fed’s asset purchase program. The central bank buys at least $ 120 billion a month in mortgage-backed treasuries and securities, and at the meeting pledged to continue to do so until it sees “substantial further progress” toward its targets. inflation and employment.
The minutes mentioned the unanimous approval of the “results-based” approach of the program, although members noted that this does not mean that procurement will be linked to specific numerical targets.
Officials agreed that markets will receive too many notifications before asset purchases are restricted. The last time the Fed cut its asset purchases, it triggered a “decline” in the market that officials want to avoid this time.
“Several participants noted the importance of clearly communicating the assessment of real and expected progress towards its long-term objectives long before it was considered substantial enough to justify a change in the pace of procurement. said.
Members also noted that once the threshold for “substantial further progress” was reached, the reduction in purchases would be “gradual” and in line with what the Fed had done since 2013. During the previous reduction in purchases, the Fed reduced buy every month. He later allowed a capped amount of receipts from the bonds he still held each month while reinvesting the rest.
It was anticipated that the committee could speed up procurement or extend the duration of bonds. The latest move would be an effort to stimulate the economy by lowering long-term interest rates.
Although the markets were looking at how much the members of the favoring committee had to adjust the duration of the acquisitions, the minutes mentioned that only “a couple” of officials indicated that they were “open” to the idea of buying older bonds.
Also at the meeting, members adjusted their economic estimates for the next few years. Overall, the committee has become less pessimistic about growth than in September and has lowered its unemployment rate projections.
Officials noted that economic data during the meeting was largely better than expected, but the accelerated deployment of Covid-19 was a challenge, and overall growth remained well below its pre-pandemic level.
“They noted that the economic recovery so far has been stronger than anticipated – suggesting a greater boost in economic activity than previously thought – but considered that more recent indicators indicate that the pace of recovery has slowed,” the statement said. -verbal. “As the pandemic worsens across the country, expansion is expected to slow further in the coming months.”
Basically, there was no change in the post-meeting statement from the previous meeting, except for the language around asset acquisitions.