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

Federal Reserve officials unanimously backed holding the pace of asset purchases steady when they met last month.

“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 tominutes 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’snot expecting a reduction in asset buying until 2022, while Atlanta Fed chief Raphael Bostic said tapering could happenthis year if vaccine distribution improves the outlook.

Further Progress

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.

The Fed meeting came as lawmakers on Capitol Hill hammered out an agreement on fresh fiscal aid after months of deadlock, with President Donald Trump signing a bill containing $900 billion in pandemic relief following Christmas.

The deal included $600 relief payments to many Americans which the president — and his Democratic opponents — criticized for being too small, while Republicans in Trump’s own party baulked at cutting bigger checks.

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