Fed officials in ‘robust’ talks on their asset purchase program

Despite potentially groundbreaking news about a coronavirus vaccine, the economy is still in jeopardy and needs help, San Francisco Federal Reserve Chairman Mary Daly said on Tuesday.

Fed officials continue to discuss what they can do to help, and those discussions have included stepping up the asset purchase program if needed, the central bank official told CNBC.

“We have set up asset purchases well and are discussing what more we could do if more was needed and what should we do in terms of communicating an asset purchase plan to the future, “Daly told CNBC’s Steve Liesman on” Squawk on the Street. “

“These discussions are still ongoing, but we really had a vigorous debate” at least a week from the Federal Open Market Committee meeting. “I would say more discussion than debate itself,” she added. “We’re all dedicated to the same thing – continuing the mission of serving the American people with our best political tools. I would say our tools are powerful.”

Daly spoke a day after Pfizer announced that its coronavirus vaccine had shown greater than 90% effectiveness in trials.

As the news sparked an explosive rebound in the stock market and raised hopes that a major obstacle had been eclipsed in the fight against the eight-month pandemic, he remained cautious that the months ahead would be difficult as new cases would continue to increase.

“News on vaccines, of course, for everyone in the world is welcome,” Daly said. “But we also have an increase in coronavirus cases right now in the United States and around the world, so this is my top priority.”

She said the Fed must “continue to support the economy and the American people as they go through this virus.” Daly described the current policy as “in a very good place” as it can be adjusted more or less depending on conditions.

Daly’s comments echo those of other Fed officials who spoke on Tuesday, although there appear to be at least some differences among FOMC members on the amount of additional action needed. Daly is a non-voting member this year but will get a vote in 2021.

For example, Dallas Fed Chairman Robert Kaplan said earlier today that he is also cautious about the outlook for the next two quarters, but sees less benefit from a larger share. from the Fed and more effective aid from the budget side.

“I think the next two quarters are going to be very difficult, very difficult,” Kaplan said at Bloomberg’s Future of Finance conference. “On the horizon, we’ll bounce back and have another solid year next year. The problem is how bad the next few quarters are. This is the big downside risk.

He added that another round of funding from the Congressional Paycheck Protection Program and perhaps a few more changes to the Fed’s Main Street loan program would help more than the surge of Quantitative Easing. .

However, Boston Fed Chairman Eric Rosengren, while warning of the financial stability risks of accommodating policies, said the challenges of the virus required more action.

“This swift action by policymakers has been critical for improvements in the economy so far,” Rosengren said in an address to the Kennedy School of Government at Harvard University. “Now, with a second wave of infections underway, I feel more fiscal and monetary accommodations are appropriate.”

The Fed is already buying at least $ 120 billion of bonds each month, although there has been speculation that the composition of the purchase could change for longer-dated bonds. Market participants increasingly expect an announcement next month, although Fed Chairman Jerome Powell did not provide any guidance in this regard at his post-meeting press conference.

In addition to asset purchases, the Fed has reduced benchmark short-term lending rates to near zero and continues to execute a series of lending and market support programs implemented during the pandemic.

Powell said the FOMC had had “a pretty useful discussion” about the future of the bond buying program, but added that at the moment “we think this very large, effective program provides the right amount of hosting. and support for markets. continues. “