Fed debates whether to reinforce low-rate pledge with yield caps – WSJ

The US Federal Reserve (Fed) officials are studying Australia’s program to buy government securities in unlimited quantities to peg some yields at low levels, cited a gated editorial article carried by the Wall Street Journal (WSJ) on Sunday.

Key points

“Fed officials are thinking hard about a new tool that would reinforce such promises by committing to buy Treasury securities in whatever amounts are needed to peg certain yields at certain levels during the various duration.

If the Fed concludes it is likely to hold rates near zero for at least three years, it could amplify this commitment by capping yields on every Treasury security that matures before June 2023.

Yield caps would be a natural complement to the calendar-based guidance but could be trickier to communicate if paired with outcome-based guidance.”

Attention now turns towards the FOMC monetary policy meeting due on Wednesday for fresh insights on the policy/ forward guidance.

• US yield curve steepest since 2018
• DXY softer in the open, markets look to the Fed, Trump's re-election campaigning and trade wars