The Fed Warns that Companies Still Experience “High Levels of Uncertainty And Risks”

New York /Istanbul
The Federal Reserve has published this Wednesday the minutes of its last monetary policy meeting of its Federal Open Markets Committee  held on July 28 and 29. In the document, the officials present in the delegation “concluded that the current crisis derived from the pandemic will severely affect economic activity, employment and inflation in the short term, as well as posing considerable risks to the medium-term outlook.”

The Fed notes that despite the rebound in consumption, there has been a minor improvement in business activity in recent months, as companies and businesses continue to experience “extraordinarily high levels of uncertainty and risk.”

That is why the FOMC members hope to keep short-term interest rates in the range of 0% to 0.25% until they are “confident that the economy has weathered recent events and is on track.”

Purposes of “greater clarity”
Regarding the prospects for monetary policy beyond last month’s meeting, several participants noted that at some point it would be appropriate to “provide greater clarity” on the likely path that the price of money will take.

It should be remembered that in the statement issued at the close of the last FOMC meeting, the results of the review that the Fed has carried out on its arsenal of tools were not yet glimpsed, with special attention to its forward guidance, that is, its future projections.

In this regard, according to the minutes, the officials advocate a forward-looking orientation that is based on concrete objectives, according to which the Committee would commit to keeping rates unchanged “at least until one or more specific economic results are achieved. “. The possibility of offering future certainty based on a calendar was also raised, in which the price of money would remain unchanged at least until a specified date.

In this way, the central bank is expected to commit itself not to raise the price of money again until inflation remains at a sustained rate of 2%, even leaving it to exceed this goal.

Another formula that is gaining popularity among investment desks is to control the yield curve, that is, to establish a goal for long-term interest rates, mainly with the 10-year American bond as a reference. On this issue, however, most central bank officials felt that controlling the curve through limits and yield targets “would likely provide only modest benefits in the current environment.”

 

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The Fed Warns that Companies Still Experience "High Levels of Uncertainty And Risks"

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