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Fed policymakers agree rates on hold for ‘a time’

WASHINGTON (REUTERS) – US Federal Reserve policymakers agreed in their final policy meeting of 2019 that interest rates were likely to stay on hold for "a time" as the central bank set its sights on a new articulation of its monetary policy framework.

Minutes of the Fed's Dec 10-11 policy meeting, released on Friday (Jan 3), also showed policymakers were preparing to discuss changes to the way it manages liquidity in financial markets, including a possible standing repurchase facility.

The Fed's meeting minutes often lay out opposing camps in the discussion of whether to shift its stance of monetary policy at that meeting.

But not the minutes for its last meeting, a reflection of the firm consensus at the central bank at the end of 2019 that it had done enough to shield the economy from a downturn by cutting rates several times that year.

"Participants judged that it would be appropriate to maintain the target range for the federal funds rate," according to the minutes.

Similarly, the minutes noted that policymakers regarded the current rate stance "as likely to remain appropriate for a time"as long as the economy stays on track.

US stock prices held onto losses after the minutes were released, with financial markets generally roiled after a US air strike killed Iran Quds Force chief Qassem Soleimani, increasing tensions between the two countries.

FOCUSING ON THE FRAMEWORK

Part of the Fed's meeting in December focused on what has become a long discussion on how to best manage monetary policy.

Policymakers agreed that they would not "reaffirm" a statement on the Fed's long-term goals in January as has become routine in recent years.

"The Committee plans to revisit this statement closer to the conclusion of the review, likely around the middle of 2020."

The minutes also said various policymakers proposed discussing at future meetings topics including a "potential role of a standing repo facility" as well as "the setting of administered rates" and the long-run composition of the Fed's Treasury holdings.

After a surprise squeeze in bank funding markets in September sent overnight borrowing costs for banks to as high as 10 per cent – more than four times the Fed's lending rate at the time – the Fed launched daily liquidity operations to prevent the financial system from seizing up.

Since then, the central bank has provided roughly US$50 billion (S$67 billion) a day in overnight and short-term credit to banks through repurchase agreements, or repo deals. In October, it then moved to permanently expand the size of its balance sheet – and boost the level of bank reserves – by purchasing US$60 billion a month in Treasury bills.

The year-end period was of particular concern for both the Fed and WRead More – Source

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