July 02, 2020

FOMC minutes highlight value of existing fiscal support, indicate more guidance coming

RatesMembers of the Federal Open Market Committee (FOMC) – the Federal Reserve's monetary policy-setting arm – agreed that recently enacted fiscal policy programs had been delivering valuable direct financial aid to households, businesses, and communities, and also provided relief to disadvantaged groups, according to minutes from the committee's June videoconference meeting.

“The minutes from the June FOMC meeting indicate that more specific forward guidance is forthcoming,” said NAFCU Chief Economist and Vice President of Research Curt Long. “That guidance is likely to tie the committee a holding rates at zero and maintaining or increasing asset purchases until some set date or until a threshold for economic improvement is achieved.

“Although more untested methods for lowering yields or flattening the yield curve do not appear to have much support, expanded use of existing tools, namely forward guidance and asset purchases, means that a low, flat yield curve is still likely to persist for several years,” Long added.  

Of note, members expect personal consumption expenditures to grow strongly in the second half of the year, albeit from very low levels. However, participants suggest consumer spending recovery is not expected to be particularly rapid due to social distancing, precautionary saving, and lower levels of employment and income restraining the pace.

Minutes released Wednesday also revealed that participants:

  • noted that levels of uncertainty and risks perceived by businesses remained high and continue to contribute to restraints on capital expenditures;
  • judged there to be a great deal of uncertainty regarding labor market improvement and expressed concerns about an increase in coronavirus cases as a result of an early reopening; and
  • pointed to relevant information from district contacts, surveys of consumer behavior and more that suggest consumer expenditures may be stabilizing or rebounding modestly.

The FOMC is expected to meet next July 28-29; its tentative meeting schedule for 2020 can be viewed here