FOMC Minutes: “The path of the federal funds rate and the balance sheet depend on actual progress”

From the Fed: Minutes of the Federal Open Market Committee, March 16-17, 2021. A few excerpts:

In their discussion of current conditions, participants noted that the COVID-19 pandemic was causing tremendous human and economic hardship across the United States and around the world. Following a moderation in the pace of the recovery, indicators of economic activity and employment had turned up recently, although the sectors most adversely affected by the pandemic remained weak. Inflation continued to run below 2 percent. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants noted that the path of the economy would depend significantly on the course of the virus, including progress on vaccinations, and that the ongoing public health crisis would continue to weigh on economic activity, employment, and inflation and posed considerable risks to the economic outlook.

Participants judged that the Committee’s current guidance for the federal funds rate and asset purchases was serving the economy well. They noted that a benefit of the outcome-based guidance was that it did not need to be recalibrated often in response to incoming data or the evolving outlook. Participants also noted the importance of communicating to the public that the existing guidance, together with the new monetary policy framework as delineated in the revised Statement on Longer-Run Goals and Monetary Policy Strategy, meant that the path of the federal funds rate and the balance sheet depend on actual progress toward reaching the Committee’s maximum-employment and inflation goals. In particular, various participants noted that changes in the path of policy should be based primarily on observed outcomes rather than forecasts.

Participants agreed that overall financial conditions were accommodative. They noted that the Federal Reserve’s asset purchases since last March had materially eased financial conditions and were providing substantial support to the economy. Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then. A number of participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases. The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee’s goals.
emphasis added