The US Federal Reserve needs to adjust the way it buys assets in the financial marketplace to support the US economy as fallout from the COVID-19 pandemic grows, the central bank’s monthly policy meeting minutes released Wednesday showed.
"While participants judged that immediate adjustments to the pace and composition of asset purchases were not necessary, they recognized that circumstances could shift to warrant such adjustment," the Fed said in the minutes of the meeting held between November 4 and 5 by its Federal Open Market Committee. "Accordingly, participants saw the ongoing careful consideration of potential next steps for enhancing the Committee's guidance for its asset purchases as appropriate."
The minutes underscored the Fed’s difficulties in managing the COVID-19 nine months into its breakout.
A recent example was the demand by outgoing Treasury Secretary Steven Mnuchin that the central bank return unused portion of the $455 billion allocated to its emergency lending programs under the Coronavirus Aid, Relief and Economic Security (CARES) Act set to expire at the end of the year.
Mnuchin said his decision was based on Congress’ original intent when it allocated the money, that whatever unused funds are returned to Treasury.
Officials at the Fed, however, expressed surprise at Mnuchin’s decision to try and claw back the funds when its lending programs were still on and while economic stress from the COVID-19 was accelerating.
Mnuchin, in his defence, said politics was not behind the decision. The treasury secretary will remain in his post until January 20, after which President-Elect Joe Biden and his administration will take over from incumbent Donald Trump’s government. Mnuchin said if the Fed needed to tap the funds again, it could seek the approval of the next treasury secretary - a process that further slows the central bank’s lending processes amid the pandemic.
In the minutes issued Wednesday, the Fed said that while the current stance of monetary policy remained appropriate, both employment and inflation fell well short of the FOMC’s goals.
Uncertainty about the course of the virus and the outlook for the economy, in contrast, remained very elevated, it said.
"Participants viewed the resurgence of COVID-19 cases in the United States and abroad as a downside risk to the recovery; a few participants noted that diminished odds for further significant fiscal support also increased downside risks and added to uncertainty about the economic outlook," the minutes added.
The US economy grew by a record 33.1 percent in the third quarter, after shrinking by 31.4 percent in the previous three months and 5 percent in the first quarter. In 2019, the economy grew by 4.1 percent.