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At last month’s FOMC meeting, the committee agreed to hold rates in their ultra-low positioning while also continuing a rapid pace of asset purchases and other operations in an effort to support the US economy through the current pandemic-driven economic crisis and, hopeful, into a healthy recovery. In the meeting minutes, released this afternoon, we see that the FOMC members felt confident in the decisions made while discussing what next steps are important for building and sustaining economic momentum for a recovery.

Fed policymakers committed to providing open-ended support to U.S. economy, minutes show https://t.co/AsGyEx8evC pic.twitter.com/C3Go8T5m4e

— Yahoo Finance (@YahooFinance) July 1, 2020

Key Takeaways

• Most individual members of the FOMC see a need to keep monetary policy “highly accommodative...for some time.”
• Committee members expressed the belief that the continued accommodative policy will need to be paired with stronger forward guidance for markets.
• The FOMC discussed the possibility of Yield Curve Control, but most participants want to investigate further before seriously considering the move.

Tracing comments made by Fed Chairman Jerome Powell as recently as yesterday, the discussion minutes around the FOMC’s June 9-10 meeting show many members of the committee as optimistic about the prospect of an economic recovery for the US while also recognizing the “extraordinary amount of uncertainty and considerable risks to the economic outlook.” With that in mind, they generally agreed, the current environment of super accommodative monetary policy and easy money conditions will be the necessary stance for some time.

Looking ahead, so to speak, there seems to be a growing consensus within the committee that it is important for the Fed to match its aggressively accommodative policy with stronger forward guidance for markets. The potential risks to market stability that come with extremely lax financial conditions can be better mitigated if the FOMC is clearly communicating to the markets what conditions could trigger the Fed to adjust course and tighten conditions. It’s worth noting that the minutes suggest most members who expressed a view indicated that the policy moves should be linked most directly to the inflation picture improving (as it relates to the Fed’s dual mandate) rather than the labor market. Should this be the case, it further implies that rates and policy will remain ultra-low because all signs indicate that inflation will be much slower than nationwide employment to return to its pre-crisis levels.

The committee did discuss the potential of implementing Bank of Japan-style Yield Curve Control as an additional tool to keep financial conditions easy, but it was hardly a strong indication of things to come. FOMC members appeared open to further investigating the idea, but nothing more for now. Additionally, “many” participants noted that better forward guidance, if correctly implemented, could provide enough stability to eliminate the need for anything as creative as curve control.

Market Reaction

At the time of writing, gold and key correlated assets are showing little to no reaction to the details of this afternoon’s FOMC discussion minutes which printed mostly as analysts expected. Gold prices have continued to hold weekly support at $1770 following this morning’s corrective selling. Treasuries have seen some selling in the afternoon, but without a lot of momentum, while the US Dollar is flat or slightly lower. US stock markets are likewise mostly flat although they look likely to close slightly in the green to begin the second half of 2020 with a gain.