WASHINGTON (2/16/12)--Members of the Federal Reserve's monetary policymaking group were split on whether to introduce another round of qualitative easing through bond purchases, according to the minutes of the Federal Open Market Committee's (FOMC) Jan. 24-25 meeting.
"A few members observed that, in their judgment, current and prospective economic conditions--including elevated unemployment and inflation at or below the committee's objective--could warrant the initiation of additional securities purchases before long," said the minutes.
However, others indicated that "such a policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2% over the medium run," the minutes continued. One committee member anticipated that a pre-emptive tightening of monetary policy would be necessary before the end of 2014 to keep inflation close to 2%.
For most committee members, the "current outlook--for a moderate pace of economic recovery with the unemployment rate declining only gradually and inflation subdued--warranted exceptionally low levels of the federal funds rate at least until 2014," said the minutes. Five participants viewed the appropriate policy firming as beginning during 2015, while six indicated that "first increase in the federal funds rate would not be warranted until 2015 or 2016. As a result, those 11 participants anticipated that the appropriate federal funds rate at the end of 2014 would be 1% or lower. Those who saw the first increase occurring in 2015 reported that they anticipated the appropriate federal funds rate would be 1/2% at the end of that year."
Some assessments of appropriate monetary policy incorporated additional purchases of longer-term securities in 2012, and a number of participants indicated that they remained open to a consideration of additional asset purchases if the economic outlook deteriorated. "All but one of the committee members continued to expect the FOMC would carry out the normalization of the balance sheet according to the principles approved at the June 2011 FOM meeting, said the minutes.
At that meeting, the committee had decided that "prior to the first increase in the federal funds rate, the committee would likely cease investing some or all payments on securities holdings in the System Open Market Account (SOMA), and it would likely begin sales of agency securities from SOMA sometime after the first rate increase," the minutes said.