WASHINGTON — Federal Reserve officials emphasized the need for continuing economic support in late July as the coronavirus pandemic dragged on, keeping millions of workers at home and threatening U.S. growth.
“Uncertainty surrounding the economic outlook remained very elevated, with the path of the economy highly dependent on the course of the virus and the public sector’s response to it,” minutes from the central bank’s July 28-29 meeting showed.
The Fed’s meeting came as virus cases staged a resurgence, one that has leveled off since, and before the July labor market report, which showed that the country continued to add jobs last month, though at a slower pace. It also took place just before government support programs lapsed, including enhanced unemployment benefits.
A major point of discussion at the meeting was the need for additional fiscal policy support — in other words, money from Congress — which Fed officials noted was “uncertain” in the short term. Officials pointed out that monetary policy and “particularly fiscal policy” would play important roles in supporting business activity.
With some stimulus provisions “set to expire shortly against the backdrop of a still-weak labor market, additional fiscal aid would likely be important for supporting vulnerable families, and thus the economy more broadly, in the period ahead,” some participants said, according to the minutes.
Senate Republicans began circulating the text of a narrow coronavirus relief package on Tuesday, but it is unlikely that Democrats will sign on. As such, it remains unclear whether and when additional government support for newly unemployed Americans and struggling businesses will materialize.
The Fed has taken actions to support the economy, but its policies can set the backdrop for growth to make it cheap to borrow and spend — they do not directly put money in consumers’ and companies’ pockets. That task falls to Congress.
Since the late-July Fed gathering, real-time indicators of consumer spending have continued to muddle along without showing much further improvement. The stock market, on the other hand, has continued to surge, with key indexes touching new highs.
The Fed has also been reviewing its policy framework — the guiding principles it follows when setting interest rates and other monetary policies — for more than a year. It is widely expected to soon announce that it is scrapping its long-held practice of raising rates pre-emptively in an effort to choke off coming inflation, opting instead for an approach that will allow price increases to run above the official 2 percent goal for a time.
That tweak would leave interest rates lower for longer, keeping borrowing for home-buying and business investment cheap. It would also respond to the reality that inflation has been weak for years, running consistently below the central bank’s target for slow but steady price gains. Excessively weak inflation can have bad side effects.
Officials at the meeting said that they should update their long-run statement of policy goals, which describes their approach, and that “it would be important to finalize all changes to the statement in the near future,” the minutes showed.