Fed supported advance notice before changing bond purchases

WASHINGTON (AP) — Federal Reserve officials last month supported providing advance notice before the central bank makes changes to its $120 billion in monthly bond purchases.

The minutes of those discussions released Wednesday show wide support for adding language to the Fed’s policy statement to indicate that the purchases would continue “until substantial further progress” has been made toward the central bank’s maximum employment and price stability goals.

The language added at the December meeting was seen as a way for the Fed to assure financial markets that there would be no quick end to the purchases. The central bank is making the monthly bond buys to provide further help to an economy struggling to emerge from a pandemic-induced recession that has seen the loss of millions of jobs.

The Fed move appears aimed at avoiding a premature market-triggered rise in borrowing costs that could could boost interest rates for mortgages, auto loans and other consumer and business borrowing activity.

The minutes note that various Fed policymakers stressed that any changes to the size of the purchases should only be made after the Fed had “clearly communicated” its changed assessment of the economic situation “well in advance” of when it planned to make alter the pace or size of the bond purchases.

The monthly purchases, made up of $80 billion in Treasury bonds and $40 billion in mortgage-backed securities, are aimed at putting downward pressure on long-term interest rates. This at a time when the Fed has cut its key policy rate governing short-term interest rates to a record-tying low of zero to 0.25% and indicated it planned to keep the rate that low at least through the end of 2023.

The emphasis on clear communications harkens back to one of the Fed's worst communication blunders. In 2013,...