Feds April 2020 meeting minutes: Coronavirus would weigh heavily on economic activity, employment and inflation

Author: Greg Michalowski | Category: Central Banks

Meeting minutes of the FOMC committee on April 28 – 29, 2020

Highlights of the April 28 – 29 FOMC committee meeting minutes:
  • mulls outcome based or databased forward guidance
  • forward guidance could be more explicit
  • FOMC could later clarify intentions on rate policy
  • Fed was committed to using its full range of tools to support the US economy
  • coronavirus would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable downside risks to the economic activity over the medium-term
  • fiscal actions were delivering valuable aid to their districts
  • expected maintain current target rates until they were confident that the economy had weathered recent economic events and was on track to achieve the Fed's goals
  • a number of participants a judge that there was a substantial likelihood of additional waves of outbreak the near medium-term
  • they would continue to monitor public health information as well as global developments and muted inflation pressures in assessing outlook
  • even after social distancing rules were lifted consumer spending was not likely to return quickly to normal levels
  • PP P loans had provided valuable assistance to businesses
  • in the side of future policy they would assess realized and expected economic conditions relative to the Fed's maximum employment objective and its symmetric 2% inflation objective
  • with regards to the flow of credit policies, the Fed would closely monitor market conditions and be prepared to adjust their plans is appropriate
  • a number of members saw additional disruptions from a 2nd wave which could lead to a protracted period of severely reduced economic activity
  • participants expressed concern that small businesses will not be able to endure an extended financial shock
  • some business models may no longer be viable after pandemic if consumer behavior changes
  • in a better case scenario, members saw activity recovering more quickly if the pandemic subsided enough for households, businesses to be sufficiently confident to relax or modify social distance in behaviors over several months
  • a few participants noted that the balance sheet used to reinforce the committee's forward guidance regarding the path of federal funds rate through treasury purchases and scale necessary to keep yields at short to medium-term maturities That specific levels (i.e. yield curve control)
  • energy sector's especially difficult. Agriculture under severe stress
  • higher levels of government indebtedness could put downward pressure on growth in aggregate potential output
  • contracts in the district reported a significant number of employees able to work remotely. Job losses concentrated in lower income jobs
  • expected the pace of treasury and MBS purchases could be reduced but said desk was prepared to increase purchases as needed should market functioning worsen
  • regulator should encourage banks to bear for possible down side scenarios by further limiting payouts to shareholders, thereby preserving loss – absorbing capital 
  • a few participants stressed that activities of some non-bank financial institutions presented a vulnerability to the financial sector
  • high levels of corporate debt increases solvency risks
  • Fed is prepared to adjust its assets purchase plans is appropriate to support smooth functioning and the markets for these securities
  • committee could at upcoming meetings, further clarify its intentions with respect to its future monetary policy decisions
  • some participants commented that the committee could make it forward guidance for the path for federal funds rate more explicit
  • some member said Fed could adopt outcome based forward guidance that would specify macroeconomic outcomes such as a certain level of the unemployment rate or of the inflation rate before raising rates
  • some member said FOMC could also consider a date based forward guidance that would indicate that the target range would be raised only after a specified amount of time had elapsed
  • baseline assumption: a complete recovery was not expected by year-end

The minutes are consistent with the comments from Fed officials and normal expectations given the coronavirus situation. The Fed did discuss the potential for yield curve controls should rates get out of line in a certain sector.  

The Fed was also debating how to give forward guidance. Would be outcome based (i.e. employment or inflation targets met) or date based forward guidance (i.e. the Fed would sit tight until XYZ date).
See here for global coronavirus case data him
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