Fed Minutes: It’s Considering New COVID-19 Support Policies

Vito J. Racanelli

Markets like to read the meeting minutes of the Federal Reserve’s FOMC even though much, if not most, of the time there’s not much new in them. But investors like to be reassured, and sometimes even if the Fed—being the Fed—fails to repeat some policy, that’s sometimes taken as a change in policy.

The minutes from the most recent meeting, June 9-10, reveal pretty much what the central bank has been saying all along: it’s going to keep rates low until 2022 and it stands ready to use all the tools it has to support the economy, including buying fixed income assets, as it has done.

And if it hadn’t said that, I’d bet the market would take it badly. Sometimes, I think the market is a big baby.

The minutes do show that the Fed looked at ways to design more support for the economy and show some concern about the possibility of additional coronavirus outbreaks, which could in turn hurt the progress made in recent weeks. And here’s the key phrase that the market probably likes: the Fed is not in a hurry to remove support.

We shall see how much support is needed and for how long. Friday, the Labor department reported that the country added 4.8 million jobs in June, much higher than expected. Markets rallied on it, of course.

It will be interesting to see what happens in Congress now, as my colleague Tom Block has said that a good employment number, like that one, would potentially make the Senate less likely to approve the full $3 trillion that the House recently passed. Moreover, the FOMC meeting for July 28-29, might now be interesting.

One other note in what is traditionally a quiet week ahead of the Independence Day Holiday. Fed Chairman Jerome Powell said the reopening of the U.S. economy—and the accompanying upturn in spending and hiring this spring—has happened sooner than central bank officials expected. Guess that means the Fed doesn’t know everything.

But he added that the push to lift restrictions on commercial activity carried other risks, such as the recent increases in coronavirus infections and hospitalizations in states across the U.S. South and Southwest. For more on this, see page 3.

Most Fed officials project the economy would contract by anywhere between 4% and 10% this year. Given Powell admitted that the Fed had been surprised by the rebound in the economy, and the Labor Dept. numbers today, perhaps we should take what the Fed says with a grain of salt? Never happen.

The yield on the benchmark 10-year U.S. Treasury note dropped sharply last week to about 0.67% vs 0.64% one week previous. Next FOMC meeting on July 28-29.

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Vito J. Racanelli
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