Since the Fed last met in July, there has been a tone around the Fed’s official comments that has raised some doubt about the need for, and perhaps the willingness of, the Fed to do more in terms of monetary policy at upcoming meetings, most notably from Minneapolis Fed President Neel Kashkari, one of the Fed’s more dovish policymakers:
“The path of the virus is going to determine the path of the economy, so the most important thing anybody can do is get our arms around the virus. Until we get there, I’m not sure that there’s a lot more for the Fed to do right now.”
And this sentiment was broadly reflected in this week’s release of the minutes from the Fed’s July 28–29 meeting, which sparked modest consternation within markets ahead of what has been a highly anticipated September confab where market expectations for not only expanded policy tools, but also the potential for new ones, have run high. The first of the three key tools the market is focused on, yield curve control, appears to have been placed firmly on the back burner:
“A majority of participants commented on yield caps and targets as a monetary policy tool … most judged that yield caps and targets would likely provide only modest benefits in the current environment, as the Committee’s forward guidance regarding the path of the federal funds rate already appeared highly credible and longer-term interest rates were already low.”
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