Federal Reserve officials took part in a detailed discussion about their asset purchase program during the meeting earlier this month, at which some members said they expect several changes to be enacted.
The Fed on Wednesday released minutes from its Nov. 4-5 policy meeting. Officials at that meeting voted to keep benchmark short-term borrowing rates anchored near zero.
Market participants were looking to the minutes to gauge where policymakers stand on possibly ramping up or adjusting the asset purchase program, which currently has the Fed buying $120 billion of Treasurys and mortgage-backed securities a month. The Fed could choose to increase the purchases or to lengthen the duration of those bonds.
While members said the current pace of purchases was helping keep financial conditions accommodative, they noted that changes could be enacted if necessary.
“Participants noted that 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 said. “Alternatively, the Committee could provide more accommodation, if appropriate, by conducting purchases of the same pace and composition over a longer horizon.”
Since the meeting, multiple Fed officials have disclosed that an involved discussion over the asset purchases took place at the meeting. An entire section of the minutes is devoted to those discussions.
Federal Open Market Committee officials also expressed concern about the pace of the economic recovery, noting that growth was still well off the pace before the coronavirus pandemic hit in March.
During his post-meeting news conference, Fed Chairman Jerome Powell said he feels the Fed still has plenty of policy “ammunition” and pledged that the committee is “strongly committed to using these powerful tools to support the economy.”
Since then, the Fed has learned that it start 2021 without some of the weapons in its arsenal, as Treasury Secretary Steven Mnuchin has directed the central bank to return collateral funding it received for multiple pandemic-era lending programs. They include corporate bond purchases, loans to state and municipal governments and the Main Street Lending Program for small- and medium-sized businesses.
Members suggested that “over coming months” the Fed should provide more detail about what it will take to adjust the program, which has taken the central bank balance sheet past $7 trillion as part of efforts to support the economy through the coronavirus pandemic.
Officials favor an outcomes-based approach that would the purchases to achieving certain economic goals. The committee also noted that it would tie the purchases to interest rates, with the bond-buying program likely to wind down before rate hikes.
Market participants have been anticipating a possible Fed announcement at the December meeting.
Looking to the economy, Fed officials said they were assuming that no fiscal support package would be enacted by the end of the year. However, they said households in aggregate had saved enough money to support consumption through the end of the year. They also noted that tax receipts showed the situation for most states and municipalities wasn’t as bad as some had feared.
Still, they said economic forecast risks are “tilted to the downside, with the latest data suggesting an increased probability of a resurgence in the disease.”
Members “noted that economic activity and employment had continued to recover but remained well below their levels at the beginning of the year,” the minutes said.