The Federal Reserve could ramp up its bond purchasing program to push down further on borrowing costs, but for now the U.S. economy’s most pressing need is for a new round of government spending, U.S. central bankers said on Wednesday.
“I think we have the capacity to do more asset purchases,” said Chicago Fed President Charles Evans, among the central bank’s most dovish policymakers. Even if it doesn’t buy more bonds, the Fed could ease policy by weighting its purchases to more longer-term securities, he added.
But long-term interest rates are already low, he said, and investors don’t appear to be losing faith in the Fed’s September promise to keep short-term rates near zero until the economy reaches full employment and inflation reaches 2% and looks set to rise further.
At some point the Fed will likely need to give explicit guidance on the future pace or type of asset purchases, Evans said, but “that’s not where we are, and it’s probably going to be the Spring until I have a better sense” of any next steps on the balance sheet.
Almost since the moment the Fed last month delivered its beefed-up promise to keep rates at zero for what could be years, attention has focused on whether the Fed would back up that promise by expanding its $7 trillion balance sheet at a faster pace.
But minutes from that meeting, released Wednesday, show little discussion over whether to adjust the Fed’s current $120 billion-a-month pace of bond purchases.
At a separate event Wednesday, New York Fed President John Williams noted that the Fed is purchasing “an extremely high level of assets already,” a characterization that appeared to signal little appetite for doing more.
Still, he suggested the door on more purchases isn’t closed.
“Clearly in the future we’ll continue to assess what’s the best use of our tools to achieve our goals,” Williams said.
Both Williams, in a rather elliptical way, and Evans, very directly, called for more federal spending to pull households and businesses through the pandemic recession.
While the economy has bounced back more quickly than many had expected from the depths of the crisis, the labor market is still down 11 million jobs from where it was in March. Many of those losses are looking to become permanent in sectors still hard-hit by the pandemic such as leisure, travel and restaurants, creating hardship for laid off workers.
The situation argues for “timely” action by government, Evans said.
President Donald Trump on Tuesday called off negotiations on a broad stimulus bill until after what he said would be his reelection in November. Democratic presidential nominee Joe Biden is leading in the polls less than four weeks before the Nov. 3 election.
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