Senior Economist at UOB Group Alvin Liew assessed the latest release of the FOMC minutes of the July event (Wednesday).
Key Quotes
“The Federal Reserve’s 28/29 July 2020 FOMC minutes were less than confidence-boosting as the Fed officials dampened hopes of a 2H20 robust recovery, highlighting that the COVID-19 pandemic ‘was posing considerable risks to the economic outlook over the medium term.’ It also stepped back from giving a clear timeline for its rate guidance.”
“The FOMC participants saw a sizable rebound in consumer spending, but less improvement in the business sector. They also noted the economy and jobs ‘had picked up somewhat’ but that path of economy would depend on the ‘highly uncertain’ path of the virus.”
“Indeed, participants generally saw the overall effect of the COVID-19 pandemic on prices as disinflationary, and several participants suggested that additional accommodation could be required to promote economic recovery, and return inflation to 2%. But a number of participants said that providing greater clarity on a likely future path of rates would be appropriate ‘at some point’, and this was read as a subtle shift away from doing so at upcoming meetings (especially the September FOMC).”
“Most policymakers were less enthusiastic about yield curve control as they judged yield caps and targets (YCT) would likely provide ‘only modest benefits in current environment’ while they highlighted that there were associated costs to yield caps, targets, including rapid expansion of balance sheet, difficulties in design and communication. In the end, many policymakers judged that yield caps and targets are ‘not warranted’ now but should remain an option in the future.”
“Overall, the minutes were seen as providing a less optimistic outlook for 2H 2020, and the Fed also disappointed further as it did not provide clarity on what and when is their next move.”
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