Federal Reserve minutes from its March meetings revealed that in its worst-case scenario the central bank believed that the US economy would not recover from the COVID-19 damage until next year - Photo by Federal Reserves Office

JAKARTA (TheInsiderStories) – United States (US) Federal Reserve (Fed) minutes from its March meetings revealed that in its worst-case scenario the central bank believed that the US economy would not recover from the COVID-19 damage until next year. Before, Mckinsey & Co., sees the US and Eurozone’ economies could take until 2023 to recover from the impact of the virus crisis.

In their discussion, the policymaker noted, that the COVID-19 spread had harmed communities and disrupted economic activity in many countries, including America, and that global financial conditions had also been significantly affected.

Available economic data showed that the US economy came into this challenging period on a strong footing, with a strong labor market, a low unemployment rate, and moderate growth in household spending, although business fixed investment and exports had remained weak. More recently, the energy sector had come under stress.

On a 12-month basis, overall inflation and inflation for items other than food and energy were running below 2 percent, said the governors. Market-based measures of inflation compensation had declined, and survey-based measures of longer-term inflation expectations were little changed.

Members judged that the effects of the coronavirus would weigh on economic activity in the near term and would pose risks to the economic outlook. In light of these developments, almost all members has agreed to lower the target range for the federal funds rate to 0 to 0.25 percent.

“These members expected that the target range would be maintained at this level until they were confident that the economy had weathered recent events and was on track to achieve the committee’ maximum employment and price stability goals,” said the minutes.

It said, one member preferred to lower the target range by 50 basis points, to 1/2 to 3/4 percent, in support of the actions taken to promote smooth market functioning and the flow of credit to households and businesses and in light of the anticipated effects of the coronavirus on economic activity and the economic outlook.

In her view, a 50 basis point cut would preserve space for further cuts in the target range that could be implemented when market conditions had improved enough to ensure that the monetary policy transmission mechanism was functioning.

The policymakers noted that they would continue to monitor the implications of incoming information for the economic outlook, including information related to public health as well as global developments and muted inflation pressures, and that the committee would use its tools and act as appropriate to support the economy.

They observed that, in determining the timing and size of future adjustments to the stance of monetary policy, the board would assess realized and expected economic conditions relative to its maximum-employment objective and its symmetric 2 percent inflation objective.

They also agreed that those assessments would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The governors emphasized that the Fed was prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum-employment and price-stability goals.

To support the smooth functioning of markets for treasury securities and agency mortgage-backed securities (MBS) that are central to the flow of credit to households and businesses over coming months, the governors agreed to increase its holdings of treasury securities by at least US$500 billion and its holdings of agency MBS by at least $200 billion.

The committee also agreed to reinvest all principal payments from the Fed’ holdings of agency debt and MBS in agency MBS. In addition, members noted that the Desk had recently expanded its overnight and term repo operations.

The Fed indicated that they would continue to closely monitor market conditions and that the Committee was prepared to adjust its plans as appropriate. At the conclusion, the committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive:

“Effective March 16, the Federal Open Market Committee directs the desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 0 to 0.25 percent,” the minutes stated.

by LInda Silaen, Email: linda.silaen@theinsiderstories.com