The Federal Reserve will do all it can to prevent a taper tantrum when it finally decides to scale back on its bond purchases, minutes from the most recent central bank meeting showed Wednesday.
After a December 15-16 two-day session, the Federal Open Market Committee voted to keep its short-term interest rate at anchor close to zero.
Markets, however, were focused on debating Fed’s asset purchase program. The central bank has been buying at least $ 120 billion in Treasurys and mortgage-backed securities each month, and at the meeting promised to continue to see “further substantial progress”. attack its inflation and employment targets.
The minutes unanimously agreed around the “product-based” approach to the program, although members noted that this does not mean that the purchases will be linked to specific numerical objectives.
Officials agreed that markets would get enough information before cutting back on asset purchases. The last time the Fed cut back on asset purchases, it encouraged a “taper tantrum” in the market that officials want to avoid this time around.
“Various stakeholders noted the importance of the Committee’s articulation of its assessment of the actual and anticipated progress towards its long-term goals long in advance. it would be considered substantive enough to change the pace of purchase, ”the minutes said.
Members also noted that once the “significant further improvement” threshold was reached, lower purchases would be “gradual” and in line with what the Fed did in 2013 during the reduction. prior to purchase, the Fed cut the rate at which it purchased each month. Later, he allowed a limited amount of the profits from the bonds which he was still taking off each month while reinvesting the remainder.
There was some expectation that the committee could either speed up the pace of buying or extend the length of the bonds. The latter move would be an attempt to stimulate the economy through further reduction of interest rates.
While markets monitored the number of committee members in favor of changing purchase time, the minutes noted that only “twin” officials indicated that they were “open to” the idea of buying bonds with a later date.
Also at the meeting, members changed their economic forecasts for the coming years. Overall, the committee became less optimistic about economic growth than it was in September and lowered projections for the unemployment rate.
Officials noted that the economic data around the time of the meeting was better than expected, but the accelerated release of Covid-19 was a challenge and overall growth was well below its pre-pandemic level.
“They noted that the economic recovery to date had been stronger than expected – suggesting a greater shift in economic activity than previously expected – but saw the latest signs. as a sign that the pace of recovery was slowing, “the minutes said.” With the spread of the pandemic across the country, the expansion was expected to slow in the coming months. ahead. “
There was almost no change in the statement after the meeting from the previous meeting except the language surrounding the purchase of assets.