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Fed policy makers cite risks to US economy if Congress fails to provide more aid

Jerome Powell is chairman of the Federal Reserve.Drew Angerer/Bloomberg

Federal Reserve officials expressed concern at their most recent meeting that the US economic recovery could falter if Congress fails to approve another round of pandemic relief.

Minutes of the meeting showed that officials believe the economy was growing faster than expected. But they based their forecasts on expectations that Democrats and Republicans would resolve their differences and provide more economic aid, including expanded unemployment benefits and help for small businesses.

The minutes said that "most forecasters were assuming that an additional pandemic-related fiscal package would be approved this year, and noted that, absent a new package, growth could decelerate at a faster-than-expected pace in the fourth quarter.”


The prospects for a new package being passed before the Nov. 3 elections, however, have significantly diminished with President Trump’s decision to end negotiations with Democrats. Trump has instead proposed that Democrats approve individual rescue items, such as money for ailing airlines and another round of $1,200 checks for most adults, rather than a comprehensive aid package.

Federal Reserve chairman Jerome Powell warned in a speech Tuesday of potentially tragic consequences if Congress and the White House do not provide further assistance, saying “the [economic] expansion is far from complete.”

The minutes covered the Fed’s Sept. 15-16 meeting, in which officials left their key policy rate unchanged at a record low near zero and signaled that they expected to keep rates at ultra-low levels at least through 2023.

The Fed’s statement incorporated a policy change to allow inflation to rise above its 2 percent target for a period of time. That change is seen as allowing it to keep interest rates lower for a longer period.

The September statement was approved on a 10-2 vote. The minutes recognized large problems in trying to forecast the path of the economy.

“Participants continued to see the uncertainty surrounding the economic outlook as very elevated with the path of the economy highly dependent on the course of the virus, on how individuals and businesses and public officials responded to it and on the effectiveness of public health measures to address it,” the minutes said.


Meanwhile, a top researcher for the central bank wrote separately on Wednesday that the Fed’s inability to cut rates further means officials would have to massively increase their purchase of bonds and other assets in order to boost the economy.

Michael Kiley, a senior economist and deputy director of the financial stability division, wrote that the central bank would have to purchases as much as $6.5 trillion worth of bonds to offset the impact of the Fed’s benchmark rate already being near zero. Because of the pandemic, the Fed has purchased bonds equal to about $3 trillion since March. That implies another $3.5 trillion is needed, in Kiley’s view, to make up for the monetary policy handicap of zero rates.

The paper may bolster the case among policy makers for increasing the Fed’s bond purchases in coming months. The Fed currently purchases about $120 billion a month in Treasuries and mortgage-backed bonds.

The minutes suggested policy makers will discuss the future of the Fed’s asset-purchase program when they meet in November.

“Some participants also noted that in future meetings it would be appropriate to further assess and communicate how the committee’s asset-purchase program could best support” the Fed’s dual-mandate objectives, according to the minutes.


That suggest officials would be open to altering or increasing the purchases — perhaps before the end of the year — as a way to further bolster the economy’s slowing recovery by lowering borrowing costs for households and businesses.

They next meet Nov. 4-5, a day after the presidential election.