January 19th, 2021

Fed supported advance notice before changing bond purchases

By Martin Crutsinger, The Associated Press on January 6, 2021.

WASHINGTON – Federal Reserve officials last month supported providing advance notice before the central bank makes changes to its $120 billion in monthly bond purchases.

The minutes of those discussions released Wednesday show wide support for adding language to the Fed’s policy statement to indicate that the purchases would continue “until substantial further progress” has been made toward the central bank’s maximum employment and price stability goals.

The language added at the December meeting was seen as a way for the Fed to assure financial markets that there would be no quick end to the purchases. The central bank is making the monthly bond buys to provide further help to an economy struggling to emerge from a pandemic-induced recession that has seen the loss of millions of jobs.

The minutes note that various Fed policymakers stressed that any changes to the size of the purchases should only be made “well in advance” of when those changes would take effect.

The monthly purchases, made up of $80 billion in Treasury bonds and $40 billion in mortgage-backed securities, are aimed at putting downward pressure on long-term interest rates. This at a time when the Fed has cut its key policy rate governing short-term interest rates to a record-tying low of zero to 0.25% and indicated it planned to keep the rate that low for some time to come.

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