Federal Reserve

Fed officials see need for 'highly accommodative' policy ahead, minutes show

Key Points
  • The Fed released minutes from its June 9-10 meeting, during which it held its benchmark interest rate near zero.
  • Officials stressed the need for strengthened guidance about policy ahead, which they expect to be "highly accommodative."
  • FOMC members expressed a preference for policy tied to outcomes, preferably inflation rather than unemployment.
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Fed says QE can be beneficial in current cycle in latest minutes

The Federal Reserve on Wednesday released the minutes from its June 9-10 meeting, during which it held interest rates steady and said it expects loose policy to prevail until the economy gets back to normal.

Officials also had an in-depth discussion about capping bond yields and strengthening guidance about where policy will be set in the future.

Central bankers on the Federal Open Market Committee voted then to hold their benchmark short-term borrowing rate in a range of 0%-0.25% and said that rate likely would prevail until the economy "had weathered recent events." That's where the Fed took the rate in mid-March as it sought to provide support for an economy reeling from the coronavirus.

Officials at the meeting noted that "the current stance of monetary policy remained appropriate" but said the Fed should strengthen the guidance it provides to markets. The minutes noted a need for "highly accommodative monetary policy for some time" and said the conditions for that should be spelled out clearly.

"In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency [mortgage-backed securities] as more information about the trajectory of the economy becomes available," the minutes said.

FOMC members at the meeting indicated that they would prefer future policy moves tied to inflation, while just "a couple" said they would rather unemployment be the guide.

In addition to the rate move, the committee also released its expectations for various data points. The median GDP projection for 2020 was a contraction of 6.5%, followed by a 5% increase in 2021 and 3.5% the following year.

"Participants commented that there remained an extraordinary amount of uncertainty and considerable risks to the economic outlook," the minutes said.

Despite the comparatively bright outlook for 2020, officials noted that the fiscal help Congress provided for households, businesses and state and local governments "might prove to be insufficient."

In addition to the talk of yield curve control and forward guidance, members also discussed the impact of asset purchases, which the Fed has stepped up this year. Some officials noted that "constraints" like already-low yields in the current environment are making the purchases less effective than they were in the wake of the financial crisis in 2008, though others said the purchases can still be effective.

In speeches since the meeting, Fed Chairman Jerome Powell has been cautious on the economy, saying the outlook is highly uncertain amid a recent surge in coronavirus cases. During that time, the Fed has started up two more lending programs, one to buy corporate bonds and the other to provide funding to small- and medium-sized businesses.