What’s Next For The Fed…Watch Out For The Maturity Extension Program (MEP)

Interesting note from the minutes of the Federal Reserve’s recent meeting on May 1….

If you remember QE (quantitative easing), watch out for what the Fed is calling a maturity extension program (MEP).


“The staff provided estimates of the capacity that the Committee would have under each scenario to provide economic stimulus through a maturity extension program (MEP).

In their discussion of a shorter maturity portfolio, many participants noted the advantage of increased capacity for the Federal Reserve to conduct an MEP, which could be helpful in providing policy accommodation in a future economic downturn given the secular decline in neutral real interest rates and the associated reduced scope for lowering the federal funds rate in response to negative economic shocks.

Several participants viewed an MEP as a useful initial option to address a future downturn in which the Committee judged that it needed to employ balance sheet actions to provide appropriate policy accommodation. Participants acknowledged the staff analysis suggesting that creating space to conduct an MEP by moving to a shorter maturity portfolio composition could boost term premiums and result in a lower path for the federal funds rate, reducing the capacity to ease financial conditions with adjustments in short-term rates.”

Sounds like more QE to me….



Chris Marcus

June 1, 2019



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