Last Month's FOMC Minutes Released
Questions Raised About Yield Cap Introduction
[Asia Economy New York=Correspondent Baek Jong-min] It has been confirmed that the U.S. central bank, the Federal Reserve (Fed), discussed the need to provide clear guidance to the market regarding the direction of interest rates following the introduction of zero interest rates due to the COVID-19 pandemic.
According to the minutes of the Federal Open Market Committee (FOMC) meeting held on the 9th and 10th of last month, released on the 1st (local time), the members said that "the current monetary policy stance is appropriate" and emphasized that the Fed should strengthen the guidance it provides to the market.
The members raised the necessity of maintaining a highly accommodative monetary policy for a certain period and stressed that the conditions for this should be clearly explained.
The Fed explained in the minutes that "most members said that 'a clearer form of guidance on the path of the policy rate should be communicated, and greater transparency should be provided regarding purchases of U.S. Treasury securities and mortgage-backed securities (MBS).'"
Some members expressed the view that future monetary policy should be linked to inflation, while others said that the unemployment rate should serve as a guide, noting that "significant uncertainty and considerable risks to the economic outlook remain."
It appears that the members raised questions about the yield cap, which was expected as an additional measure after the introduction of zero interest rates.
According to the minutes, the members mentioned, "If the Fed’s guidance maintains credibility going forward, it is unclear whether there is a need to strengthen future guidance related to the yield cap."
The yield cap is a policy that sets an upper limit on the interest rate of certain bonds, and if the rate rises above that limit, the Fed buys bonds infinitely to lower the interest rate.
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