April 09, 2020

FOMC minutes reflect economic uncertainty surrounding coronavirus

ratesMembers of the Federal Open Market Committee (FOMC) – the Federal Reserve's monetary policy-setting arm – agreed that the coronavirus would have near-term effects on economic activity and pose risks to the economic outlook as it voted to lower the federal funds rates, according to minutes from the committee's March videoconference meeting.

"The FOMC stressed several things in the minutes for its March meeting," said NAFCU Chief Economist and Vice President of Research Curt Long. "Chiefly, the committee believes it still has ammunition to provide to the economy, but that it will be more of what is already being done, rather than cracking the seal on untested methods like negative rates.

"NAFCU continues to believe that rates will remain low and the yield curve will stay flat for the rest of this year," he added.

The FOMC cut interest rates 50 basis points twice in March in efforts to mitigate the potential economic effects of the coronavirus. The federal funds target rate is now set at a range of 0 to 0.25 percent.

The Federal Reserve also announced a stabilization package and committed to using the full range of its authorities to support the economy during the pandemic.

Additionally, members indicated that the target range would be maintained at its current level until the committee is confident that the economy had weathered recent events and was on track to achieve "the Committee’s maximum employment and price stability goals."

Minutes released Wednesday also revealed that participants:

  • relayed reports on business sectors already badly hit by the response to the coronavirus outbreak, including those affected by the cancellation of many events, decisions by firms and households to reduce travel, government-mandated reductions in entry from abroad, and cutbacks on economic activity that required in-person interaction;
  • remarked that lowering the target range to the ELB could increase the likelihood that some market interest rates would turn negative, or foster investor expectations of negative policy rates; and
  • examined two plausible economic scenarios that spanned a range of possibilities, determining the future performance of the economy would depend on the evolution of the virus outbreak and the measures undertaken to contain it.

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