Fed to Stick With Stimulus as Long Road to Economic Recovery Ahead: Fed's Minutes

Fed to Stick With Stimulus as Long Road to Economic Recovery Ahead: Fed's Minutes

Investing.com  | May 21, 2020 02:04

Fed to Stick With Stimulus as Long Road to Economic Recovery Ahead: Fed's Minutes

By Yasin Ebrahim 

Investing.com - Federal Reserve members expressed caution on the prospect of a speedy economic recovery and remained committed to keeping policy accommodative until the economy has weathered the pandemic's impact, according to the minutes of their April meeting out Wednesday.

At the conclusion of its previous meeting on April 29, the FOMC kept its benchmark rate unchanged in a range of 0% to 0.25% and vowed to keep rates lower to ensure that an eventual economic recovery will be robust.

"Members noted that they expected to maintain this target range until they were confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals," the minutes showed.

In a dire assessment of the road to economic recovery, committee members agreed that the impact of the coronavirus would "weigh heavily on growth in the near term, and posed considerable downside risks to the economic outlook over the medium term." Growth is expected to return in the second half of the year, but it is unlikely a full recovery would be made by year-end.  

A few members, meanwhile, floated the idea of yield curve control to support economic growth.

"A few participants also noted that the balance sheet could be used to reinforce the Committee’s forward guidance regarding the path of the federal funds rate through Federal Reserve purchases of Treasury securities on a scale necessary to keep Treasury yields at short to medium-term maturities capped at specified levels for a period of time," the minutes said.

Looking ahead, some Fed members also expressed a need for more clarity on policy, allowing market participants to assess the conditions that may lead to a change of future monetary policy. 

"Some participants commented that the Committee could make its forward guidance for the path for the federal funds rate more explicit. For example, the Committee could adopt outcome-based forward guidance that would specify macroeconomic outcomes—such as a certain level of the unemployment rate or of the inflation rate—that must be achieved before the Committee would consider raising the target range for the federal funds rate. The Committee could also consider date-based forward guidance that would indicate that the target range could be raised only after a specified amount of time had elapsed."

The unwavering conviction from the U.S. central bank to do whatever it takes to support the economy was recently echoed by Fed Chairman Jerome Powell.

Powell told the Senate Banking Committee Tuesday that the Fed will use whatever it can muster to fight the economic impact of Covid-19.

“We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response,” Powell said, according to Bloomberg.

As well as the two emergency rate cuts in March, the Fed has unveiled 10 separate lending programs to boost liquidity and support businesses and consumers.

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