Fed officials push for stronger guidance about where policy is headed, minutes show

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The Federal Reserve on Wednesday released the minutes from its June 9-10 meeting, during which it held interest rates steady and had an in-depth discussion about capping bond yields and strengthening its guidance about where policy will be set in the future.

Central bankers on the Federal Open Market Committee voted to hold their benchmark short-term borrowing rate in a range of 0%-0.25%. 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 marketsĀ 

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 stated.

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

With near-zero rates unlikely to budge as the U.S. remains mired in recession, Fed watchers were looking for nuance from the minutes release. Among the items on the market’s radar will be indications of bond yield controls and enhanced forward guidance about what it will take for the central bank to move from its ultra-accommodative policy stance.

Members at the meeting indicate 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 talk of yield curve control and forward guidance, members also discussed the impact of asset purchases, which the Fed has stepped up this year. Officials noted that “constraints” under the current environment are making the purchases less effective than they were in the wake of the financial crisis in 2008.

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.

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