Loan-Program End Seen Raising Odds of More Fed Action

Loan-Program End Seen Raising Odds of More Fed Action

The U.S. Treasury Department’s request that the Federal Reserve wind down several emergency lending programs at the end of the year has given the central bank another reason to consider consider providing more support the economy in other forms.

Without the facilities in place, Fed officials may take the view that downside risks to the economic outlook are higher, especially amid a stalemate in Congress over additional fiscal relief and worsening COVID-19 outbreaks. That would add to a debate about whether to make changes to the central bank’s large-scale bond-buying program that Fed watchers were already expecting to be the focus of their Dec. 15-16 policy meeting.

Several Wall Street analysts had already seen rising odds of the Fed making such changes in December and indicated Friday that the Treasury’s request only bolstered the case.

“If the Fed gives back the facilities funds to the Treasury, the argument for doing more would be even stronger,” Roberto Perli, a partner at Cornerstone Macro in Washington and former Fed economist, said in a note to clients. “But it also depends on financial conditions and the outlook a few weeks from now.”

Treasury Secretary Steven Mnuchin on Thursday requested the Fed return unused money earmarked for the facilities so Congress can reauthorize it to be spent on other fiscal aid. He extended several of the Fed’s programs but said five should sunset at the end of the year on schedule. The Fed quickly responded that it would prefer all of the programs continue.

The loan programs, which the Fed began rolling out in the spring in response to the pandemic, have provided a backstop for companies and state and local governments unable to obtain financing from the private sector. Easy financial conditions have prevented them from making many actual loans, though Fed officials believe the solid financing environment is partly because of the support the facilities give.

At their last meeting on Nov. 4-5, Fed officials had what Chair Jerome Powell called “quite a useful discussion” about options for modifying the bond-buying program that’s been in place since March and propelled the central bank’s balance sheet to $7 trillion. Minutes of that meeting, which the Fed will publish Wednesday, will show the extent to which a consensus was building among officials that a change would be needed soon.

Purchase Pace

Right now, the Fed is buying $120 billion of U.S. government and mortgage-backed securities per month, with purchases spread out evenly across the spectrum of shorter to longer-dated debt. Policy makers have said they could up the pace of buying if they felt changes were necessary, or keep it steady while concentrating purchases more toward longer-term notes to put more downward pressure on interest rates. Perli sees a change in composition as more likely than an outright increase.

But so far, Fed officials themselves have been noncommittal. Chicago Fed President Charles Evans told CNBC on Friday that Treasury’s stance on the lending facilities was “disappointing,” though he added it may be too soon for the central bank to modify its asset-purchase program.

“We are in a pretty good place at the moment to sort of see how everything is going to play out,” Evans said. “I’m really looking at sort of the spring for when we have a better assessment of the labor-market dynamics and the momentum that we are going to see, or if there is really a need for more.”

© Copyright 2020 Bloomberg News. All rights reserved.

There is no custom code to display.


Worthington BLOG: The Battleground States

Worthington BLOG: The Battleground States

The Battleground States By Rick Worthington 10/12/2020   Idaho is a RED STATE. Very Red. I hereby am ready to call Idaho and it’s mere 4 electoral votes for Donald Trump and Republicans in the 2020 Presidential Election. I am not walking out on a limb, because Idaho is not a swing state, or Battleground…

Worthington BLOG:  From Patriot to Punchline

Worthington BLOG: From Patriot to Punchline

From Patriot to Punchline By Rick Worthington 9/3/20 Have you ever tried to do something good, but went about doing it the wrong way? I think, that is what we saw from Ammon Bundy during the Special Session in Idaho. I fear those actions have tainted the man’s reputation as a freedom fighter to what…

Worthington BLOG: Racism is more common than you think

Worthington BLOG: Racism is more common than you think

  Racism is more common than you think 6/4/20   By: Rick Worthington I guess this is as good a time as any to admit, the #BLM rallies in Idaho and the rioting in other areas has me thinking more about racism than I have in years. Let us speak honestly. Racism exists, and it is…

Worthington BLOG: Don’t Judge Me For Opening My Business Early

Worthington BLOG: Don’t Judge Me For Opening My Business Early

Worthington BLOG: Don’t Judge Me For Opening My Business Early 5/13/20 By Rick Worthington I’m not one to rebel or clash against the government. I believe in the rule of law, and abide by the law as best I can…for the most part. Yes, I’ve had a speeding ticket in my lifetime. I mean, I’ve…