Fed-Minutes: Worries about delay of fiscal package

The FOMC minutes published yesterday evening show a positive assessment of the economic situation. However, this assessment should not hide the fact that at the time of the meeting of the Open Market Committee there was still justified hope for a further fiscal package before the US presidential election. These hopes were dashed when the negotiations on an additional aid package between Democrats and Republicans were halted. Against the backdrop of rising case numbers and unlikely fiscal stimuli, the guardians of the currency are now likely to express much greater concern. The latest speeches by various central bankers point to this. In the past few days, Powell and several other central bankers have warned that without further fiscal aid the US economy could slide back into recession.

The FOMC members expressed satisfaction with the prospect of a zero interest rate policy until 2023, which is in line with the Federal Reserve’s recently revised target. The Fed had anchored the average inflation target announced in Jackson Hole in its forward guidance. However, the monetary authorities qualified their statement by saying that this was not an unconditional assurance. Ultimately, they seem to reserve the right to adjust monetary policy depending on the economic situation.

In addition, the Fed’s bond purchases gave rise to a lively discussion. Some FOMC members can imagine increasing the volume next year. In addition, the Fed could increasingly buy longer-dated bonds. We assume that the Fed members will use the purchases of government bonds to control the long end of the yield curve. If yields there rise, the central bank will increase the volume of purchases. This should keep US yields low for the time being. Key rate hikes will not be on the agenda for a long time yet.

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