Por Howard Schneider
WASHINGTON, Oct 16 (Reuters) – Homes are being built and sold across the United States, cars are leaving dealerships, corporations are issuing debt, and financial conditions remain generally expansive.
The market expected in September that the US Federal Reserve, by deploying a new approach to monetary policy and continuing to fight the recession, would increase its bond purchases to further boost the economy. However, the business has stubbornly sent a different signal.
The job market is recovering jobs every month, albeit at a slower pace, and other data continues to surprise positively.
US retail sales in September, for example, rose an unexpectedly strong 1.9% from the previous month, and at nearly $ 550 billion are 3.7% above pre-pandemic levels, the rate As a result, the US central bank may hesitate to adjust its current $ 120 billion in monthly purchases of government bonds and mortgage-backed securities (MBS).
With financial markets stable and credit available, people and businesses “buy houses, buy cars and ask for hardware and software,” Federal Reserve Vice Chairman Richard Clarida said this week, pointing to some of the transactions that policy Expansive monetary policy hopes to traditionally encourage and worry the Federal Reserve if it sees them to be deficient.
“Right now we have good monetary policy in place,” St. Louis Federal Reserve Chairman James Bullard said during a panel at the annual meetings of the International Monetary Fund and the World Bank on Friday.
“We have our (quantitative easing) program with a substantial amount of purchases. I think that’s appropriate.”
Interest rates on US Treasuries remain at record lows, holding rates on related loans, including 30-year mortgages.
More broadly, even with the outcome of the coronavirus pandemic in doubt and millions of workers marginalized due to the crisis, Bullard and other Federal Reserve officials have improved their economic forecasts in recent weeks. Credit market indicators and inflation expectations remain stable, if not improving.
LIMITS ON THE PURCHASE OF BONDS
While in the spring the economy appeared to be reeling towards the worst of results – a longer recession followed by rounds of defaults and a subsequent financial crisis – it has now entered the path of recovery.
“With the economy clearly on the right track, the (Federal Open Market Committee) will not take any other meaningful policy action unless something bad happens,” wrote this month William Nelson, a former Federal Reserve official who is now chief economist. of the Banking Policy Institute, referring to the committee that sets the monetary policy of the Federal Reserve.
That “something” could well happen.
Federal Reserve officials have been outspoken about the risks of an ongoing pandemic, including a drop in family income from the expiration of unemployment insurance benefits or other events that cause the recovery to skyrocket.
The Federal Reserve’s asset purchases are aimed at bolstering the economy in different ways. For example, by increasing demand for riskier bonds, they keep various related interest rates low and make loans cheaper. They often drive up the prices of stocks and other assets, creating a “wealth effect” that triggers more economic activity.
A leading Federal Reserve economist recently estimated that the central bank would need to buy another $ 3.5 trillion in securities to offset the impact of the pandemic and the recession it triggered.
Others have argued that more is needed to show that the central bank is serious about meeting its 2% inflation target.
But the Federal Reserve has bought about $ 3 trillion in Treasuries and MBS since the recession began, and has set an open promise to continue buying at least $ 120 billion more each month, a faster rate than during the crisis. financial and the recession of 2007-2009.
In its latest policy statement, the Federal Reserve said that amount is already helping to maintain the “expansionary” financial conditions that it has promised to maintain indefinitely.
The economy has not recovered at all from the shock it suffered in March and April, when quarantines were imposed to control the spread of the virus.
But of the two great engines used to drive the U.S. economy – monetary conditions controlled by the Federal Reserve and government spending controlled by Congress – central bank officials feel theirs is doing what it can for now. .
At this point, Fed officials have pointed out, the need is to put the money directly into the pockets of unemployed workers who need to make mortgage payments, businesses that wait for customers to return, or local governments that need pay workers.
Buying bonds will not do that.
(Reporting by Howard Schneider; Additional reporting by Ann Saphir; Edited in Spanish by Javier López de Lérida)