The Federal Reserve edged towards a longer-range plan for monetary policy at its meeting last month, raising serious questions about a strategy known as yield curve control that is untested in the United States, and signaling it may rely on explicit promises about its inflation or employment goals to steer public expectations.
FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis
While no decisions were made, policymakers appeared skeptical of yield curve control, alternately described as a “target” or “cap” in the Fed’s minutes, which were released on Wednesday. That sort of language, many Fed officials felt, could stand on its own, “as long as the committee’s forward guidance remained credible,” and would not need to be combined with yield curve control, as is currently done by the RBA.
That is giving Fed officials time to continue studying the issue and watching how different rate-control strategies are playing out among their peers. That sort of combination strategy - of tying explicit promises about interest rates to progress on a central bank’s mandated goals - has been mentioned favorably by some officials in an ongoing review of Fed monetary policy.
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