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Fed Officials All Backed Bond-Buying Pace, December Minutes Show

Steve Matthews
·3 min read

(Bloomberg) -- Federal Reserve officials unanimously backed holding the pace of asset purchases steady when they met last month, with some open to “future adjustments” if needed.

“All participants judged that it would be appropriate to continue those purchases at least at the current pace, and nearly all favored maintaining the current composition of purchases,” according to minutes of their Dec. 15-16 meeting published Wednesday. “A couple of participants indicated that they were open to weighting purchases of Treasury securities toward longer maturities.”

The Federal Open Market Committee held interest rates near zero and strengthened its commitment to bond buying at the meeting, pledging to maintain a $120 billion monthly pace of purchases until there is “substantial further progress” toward its employment and inflation goals.

“Some participants noted that the committee could consider future adjustments to its asset purchases -- such as increasing the pace of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining maturities -- if such adjustments were deemed appropriate,” the minutes said.

Chair Jerome Powell described the new guidance as “powerful,” though both policy makers and investors have since struggled to agree on what would trigger a tapering in asset purchases. Cleveland Fed President Loretta Mester said this week she’s not expecting a reduction in asset buying until 2022, while Atlanta Fed chief Raphael Bostic said tapering could happen this year if vaccine distribution improves the outlook.

“It doesn’t sound like there was much energy toward making a change,” Stephen Stanley, chief economist at Amherst Pierpont Securities. “I am doubtful that we will see tweaks to the composition of the purchases unless the long end of the yield curve is perceived to be spiraling higher out of control.”

‘Broad, Qualitative’

On what they meant by “substantial further progress,” officials stressed this judgment would be “broad, qualitative, and not based on specific numerical criteria or thresholds.”

”A number of participants noted that, once such progress had been attained, a gradual tapering of purchases could begin and the process thereafter could generally follow a sequence similar to the one implemented during the large-scale purchase program in 2013 and 2014.”

The FOMC’s Dec. 16 statement said “economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.” Its quarterly projections for the economy showed some improvement compared with September.

The minutes showed officials discussed the impact of the rollout of Covid-19 vaccines, even though a surge in infections would likely slow the economy further in coming months.

Vaccines ‘Positive’

“Nevertheless, the positive vaccine news received over the inter-meeting period was viewed as favorable for the medium-term economic outlook.”

The U.S. central bank slashed its benchmark interest rate to nearly zero in March at the onset of the coronavirus pandemic and ramped up crisis-era bond-buying programs to pump liquidity into the financial system and keep a lid on longer-term interest rates.

Officials have signaled they will probably hold rates near zero at least through 2023.

At last month’s meeting they predicted downward pressures on inflation would “abate” next year, though a couple suggested that technology-enabled disruption and lasting pandemic-induced restraints on firms pricing power could keep the lid on prices.

The minutes noted that seven participants -- five more than in September -- expected overall inflation to be above the committee’s 2% objective in 2023, while the staff forecast a modest overshoot to continue “for some time in the years beyond 2023.”

(Updates with analyst’s reaction in sixth paragraph.)

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