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Fed Mulls Tweak of Asset Purchases to Keep Recovery Intact, Minutes Show

Economic IndicatorsNov 25, 2020 04:01PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com - Federal Reserve policymakers mulled a range of options to tweak their bond-buying program, and agreed that while the current pace of purchases was appropriate and an update on guidance was needed "fairly soon," according to the minutes of the central bank's last policy meeting released Wednesday.

At the conclusion of its previous meeting on Nov. 5, the Federal Open Market Committee kept its benchmark rate in a range of  0% to 0.25% and pledged to maintain bond purchases at a $120 billion monthly pace.

Fed members debated a range of options on bond purchases to support the recovery, including increasing the pace of purchases or shifting focus to longer duration bonds.      

"Participants generally saw the current pace and composition as effective ... and noted the committee "could provide more accommodation, if appropriate, by increasing the pace of purchases or by shifting its Treasury purchases to those with a longer maturity without increasing the size of its purchases," the minutes showed.

The Fed's bond purchases so far, have lowered longer term borrowing costs for businesses and households, and continue to help steer the economy through the pandemic.  

In recent weeks, the sense of urgency to widen the liquidity spigot has been strengthened after Treasury Secretary Steven Mnuchin said he would allow the central bank's emergency lending programs – rolled out at the height of pandemic in March – to expire at year-end.

"The unilateral decision of Treasury Secretary Mnuchin to allow a slew of Fed emergency lending programs to close to new borrowers on December 31, despite Fed objections, increases the chance that the FOMC will step-up its asset purchases," Pantheon Macroeconomics said in a note.

The decision from Mnuchin was widely criticized as it comes as a time when another wave of coronavirus cases across the nation has seen parts of the U.S. impose lockdown measures that will slow the recovery.

Most members, however, appear keen to avoid the 'taper tantrum' seen in previous years - when expectations for the central bank to trim its bond purchases triggered a bout volatility in markets - and prefer the Fed to beef up its guidance on bond purchases.

“Many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon,” the minutes said. "Most participants judged that the guidance for asset purchases should imply that increases in the Committee's securities holdings would taper and cease sometime before the Committee would begin to raise the target range for the federal funds rate." 

The lower interest rate environment has allowed the economy to pick up the economic slack, which in turn is expected to "cause inflation to increase gradually," with the fed predicting a moderate 2% overshoot for some time in the years beyond 2023. 

While Fed members agreed the future path of fiscal policy support remained uncertain, hopes for a helping fiscal hand were given a boost on reports that President-elect Joe Biden will nominate former Fed Chair Janet Yellen as Treasury Secretary.

During her tenure as Fed Chair, Yellen was viewed as pro-stimulus, and if nominated is widely expected to support fiscal-boosting measures.

Treasury secretaries, however, don’t have direct control over fiscal policy. The former Fed Chair will likely have to contend with a Republican-held Senate that could keep fiscal policy options on a short leash somewhat.

Fed Mulls Tweak of Asset Purchases to Keep Recovery Intact, Minutes Show
 

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Comments (12)
abe cranston
abe cranston Nov 25, 2020 4:15PM ET
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Does this decision by the treasury to end funding to the fed by December, 31st impact the $120 billion they are spending in bond purchases?  Thanks!
Tony Coll
Tony Coll Nov 25, 2020 4:15PM ET
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The treasury isn't funding the fed, the fed is funding the treasury. Buy buying bonds the the fed is essentially loaning the government money.
abe cranston
abe cranston Nov 25, 2020 4:15PM ET
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Well said, thank you
Robert Cox
Robert Cox Nov 25, 2020 4:15PM ET
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The Fed doesn't buy bonds directly from the Treasury. They buy bonds from the banks, who in turn buy bonds from the Treasury. It's a means of ensuring banks have a source of liquidity should the need arise. As for how the Treasury claw back will impact bond buying, that's anyone's guess. Mine is that it won't be too impactful before Yellen can find a way to free up some funds.
peter neal
peter neal Nov 25, 2020 4:02PM ET
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Biden is going to add 16 trillion in spending by Executive Orders and will put Venezuela to shame. Do all you can to pander more votes. Tear down the wall and let them all in so they can vote. Only reason. Completely destroy America only goal.
Nayan Shah
Nayan Shah Nov 25, 2020 4:02PM ET
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Any article to support it. I am not interested in politics, but wanted to know to better speculate the market.
king michael
king michael Nov 25, 2020 3:41PM ET
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FED is essentially owned by private banks. Those are the people who has been trying everything to take money from working American using the granted power on $ printing, debt issuing etc.  to make sure working American would live at the minimum standard to not to go against them.
Musical Critic
Musical Critic Nov 25, 2020 3:14PM ET
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Yeah, just keep STIMULATING.. forget the dire consequences!
sparkly shiny
sparkly shiny Nov 25, 2020 2:48PM ET
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FED again accepted that there is "uncertainty"
Alan Rice
Alan Rice Nov 25, 2020 2:39PM ET
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World Economies: Depletion Dependent. Tic-toc.
Eloy Rodrigo
Eloy Rodrigo Nov 25, 2020 2:36PM ET
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But ponzi-scheme is a crime, isn't it?
bert prince
bert prince Nov 25, 2020 2:33PM ET
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as always, markets are praising and cheering for more free money to inflate markets. It creates Markets excess, keep zombie companies afloat, finance dumping from loss-making competition crusher unicorns. it's not capitalism anymore
Benjamin Rivkin
Benjamin Rivkin Nov 25, 2020 2:27PM ET
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So we have Yellen in charge, republican senate, biden as president and vaccine next month. Stocks are going through the roof! until the plug is switched off and they dont, but thats another topic. meanwhile enjoy the ride!
Pin ga
Pin ga Nov 25, 2020 2:27PM ET
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Georgia senate run off race is jan 4th
Vee Patel
Vee Patel Nov 25, 2020 2:27PM ET
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What a Joke keep destroying the dollar to prop up the markets and make it look like our economy is doing great to the rest of the world.
Jimmy Kim
Jimmy Kim Nov 25, 2020 2:26PM ET
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Fed and people should be more responsible on comming debts
Jesse Mulliniks
Jesse Mulliniks Nov 25, 2020 2:23PM ET
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More magical digits added to a screen. Say goodbye to your purchasing power everyone.
Tristan White
Tristan White Nov 25, 2020 2:23PM ET
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Yes, the FED is doing more harm than good in the long run.  The dollar will be worthless and the S and P will be stagnant for the next 10 years.
maurice declerk
moemoron Nov 25, 2020 2:23PM ET
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Tristan White  There's nothing the FED can do.  Reality is they should just let the market crash, then 4 - 8 years of depression, and we will be stronger at the end of it.  But no-one will allow that.  So they let it 'crash' threw devaluing the dollar while keeping the market constant.
maurice declerk
moemoron Nov 25, 2020 2:23PM ET
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Tristan White  So instead of 4-8 years of depression, we have 20-25 years of 'stagnation'.
Tristan White
Tristan White Nov 25, 2020 2:23PM ET
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maurice declerk  I agree with you, they should have let it crash, too late now.
Tristan White
Tristan White Nov 25, 2020 2:23PM ET
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A constant market would be 2700/2800, where we are now is just ridiculous.
 
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