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Home » Fed officials worried that lack of help from Congress will threaten recovery, minutes show

Fed officials worried that lack of help from Congress will threaten recovery, minutes show

by FWNews
October 7, 2020 11:13
in News
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Federal Reserve officials worried that a lack of further fiscal stimulus would jeopardize an economy recovery that was moving faster than expected, according to minutes released Wednesday from the central bank’s September meeting.

The Federal Open Market Committee on Wednesday released minutes from its Sept. 15-16 meeting. The Fed’s policymaking arm held interest rates steady at the meeting and approved language outlining its new approach to inflation.

The minutes described the recovery in GDP at that point as being “rapid.”

The meeting featured extensive discussion about the economic outlook, as members said the economy was doing better than expected in good part because of the fiscal help provided by Washington.

That support is in jeopardy as talks have broken down between the White House and congressional Democrats and may not resume before the November election.

“Many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated,” the meeting summary stated.

Small businesses and farmers were being bolstered by the support, officials said, amid an economy that had regained more jobs than expected through August.

As such, “the absence of further fiscal support would exacerbate economic hardships in minority and lower-income communities,” the minutes said.

As the committee discussed economic conditions, members moved to incorporate recent changes about the Fed’s approach to inflation, and what it would take to justify future rate hikes.

Markets have been looking for enhanced forward guidance about what specific benchmarks the FOMC would use as criteria. However, members said that the new language indicating a target of inflation averaging above 2% for a period of time would be sufficient.

“Most participants supported providing more explicit outcome-based forward guidance for the federal funds rate that included establishing criteria for lifting the federal funds rate above the [current level near zero] in terms of the paths for employment or inflation or both,” the minutes said. “However, with longer-term interest rates already very low, there did not appear to be a need for enhanced forward guidance at this juncture or much scope for forward guidance to put additional downward pressure on yields.”

The Fed previously had expressed its inflation target as being “symmetric,” meaning that it would rise above or below the 2% target. Members feel the new language makes it more explicit that the Fed is shooting for inflation of at least 2%.

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