(Bloomberg) -- Federal Reserve officials, midway through an unprecedented review of how they conduct monetary policy, haven’t ruled out major changes to their strategies, tools and communication practices.
In a special section of minutes of their July 30-31 meeting, released Wednesday in Washington, policy makers revealed that they intend to continue to examine, among other things, “alternative policy strategies,” possible additions to the policy toolkit, and “potential changes to communications practices.”
The central bank launched the process earlier this year and has hosted a series of events to gather input from across the country. It was prompted largely by their worry that persistently low inflation and interest rates will make it difficult for the Fed to combat recessions with their existing monetary policy strategy and tools.
Perhaps most consequentially, officials have discussed whether they might seek to deliberately overshoot their 2% inflation objective after an extended period of below-target inflation. Annualized price rises in the U.S., as measured by the Fed’s preferred gauge, have run consistently below 2% since January 2012 when the central bank introduced its target.
“In principle, such makeup strategies could be designed to promote a 2% inflation rate, on average, over some period,” the minutes said.
Many participants, however, said the success of any makeup strategy would depend heavily on investors’ understanding of that policy and on their confidence that the Fed would follow through once it announced such an intention.
The Fed is unlikely to make any changes soon. Officials said any potential modifications “would take some time and that the process would be careful, deliberate and patient,” the minutes said.
Policy makers did, however, endorse their past use of unorthodox and somewhat controversial policy measures, namely large-scale asset purchases and a communications technique known as forward guidance, under which they pledged to keep interest rates near zero for an extended period of time.
Because of the perceived effectiveness of forward guidance and asset purchases during the financial crisis and subsequent recession, the minutes said, Fed officials “could proceed more confidently and preemptively in using these tools in the future if economic circumstances warranted.”
--With assistance from Craig Torres.
To contact the reporter on this story: Christopher Condon in Washington at ccondon4@bloomberg.net
To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Jeff Kearns
©2019 Bloomberg L.P.
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