Richard Clarida, the vice-chair of the Federal Reserve, hinted at possible changes to the US central bank’s bond-buying programme as it seeks ways to keep the recovery going in the world’s largest economy.
“The Federal Reserve is committed to using all of our available tools — not just the federal funds rate and forward guidance, but also large-scale asset purchases — to achieve our dual mandate goal,” Mr Clarida said in remarks to the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.
A text of his speech circulated ahead of the event emphasised the word “all”.
Mr Clarida noted that the Fed’s bond purchases — which increased sharply at the start of the pandemic — were already providing “substantial support” to the recovery and this “critical role” was discussed at the central bank’s monetary policy meeting in early November.
“Looking ahead, we will continue to monitor developments and assess how our ongoing asset purchases can best support achieving our maximum employment and price-stability objectives,” Mr Clarida added.
The focus on asset purchases comes as the Fed explores additional measures to help the US economy, which is confronting a surge in coronavirus cases with limited help from fiscal policy.
The Fed in September made a very dovish pledge to keep its main interest rate close to zero until the economy reaches full employment and inflation is at 2 per cent and on track to exceed it for some time.
The Fed is currently buying Treasury securities at a pace of $80bn per month, spread across all maturities. In September, it said the aim of the asset purchases was not simply to improve the functioning of the market but also to support the economic recovery.
Since then, it has faced repeated appeals from investors for more clarity on the future of the programme.
Among the options the Fed could consider are an increase in the total amount of bonds being purchased, or a change to focus its firepower on long-term securities to counter a recent rise in borrowing costs.
Treasury yields, which rise as prices fall, have jumped higher in recent weeks as investors have looked beyond the current rise in Covid-19 cases and new restrictions on business and social activity, to the prospects for an end to the pandemic when vaccines are rolled out.
The yield on the benchmark 10-year note climbed as high as 0.97 per cent at one point last week, although it has since retreated to 0.9 per cent. Some investors believe it could breach 1 per cent in the near term.
In light of the surge of coronavirus cases worldwide, Michael Feroli, chief US economist at JPMorgan, wrote on Monday that the Fed could make an adjustment to its asset purchases as soon as its December meeting.
“While markets are more focused on the medium-term outlook, where vaccine hopes are rising, recent Fed rhetoric has indicated growing concern about the months between now and when a vaccine is widely available,” he said.