WASHINGTON (8/23/12)--Saying that stimulus would be needed soon unless the economy grew substantial stronger, the Federal Open Market Committee (FOMC), the Federal Reserve's monetary policymaking body, is preparing steps to boost the nation's economic recovery, according to the FOMC minutes for its July 31-Aug. 1 meeting. Members of the FOMC discussed several alternatives.
The minutes, released Wednesday afternoon, noted that "many members expected that at the end of 2014, the unemployment rate would still be well above their estimates of its longer-term normal rate and that inflation would be at or below the committee's longer-run objective of 2%. A number of them indicated that additional accommodation could help foster a more rapid improvement in labor market conditions in an environment in which price pressures were likely to be subdued.
"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. Several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action," said the minutes.
According to The Wall Street Journal
(Aug. 22), the statement suggested support for action is growing within the Fed. At its June meeting, only "a few members" of the committee indicated further stimulus would likely be needed, the newspaper said. "The caveat that a substantial and sustainable pickup in growth could forestall action suggested that the Fed has set a high bar to holding off. Some recent economic data have picked up, but few economists have described the improvements as substantial," the Journal
The FOMC minutes noted that "members agreed that [their statement] should acknowledge the deceleration in economic activity, the small gains in employment, and the slowing in inflation reflected in the economic data over the intermeeting period. Because most saw no significant changes in the medium-run outlook, they agreed to continue to indicate that the committee anticipates a very gradual pickup in economic activity over time and a slow decline in unemployment, with inflation at or below the rate that it judges most consistent with its dual mandate," the minutes said.
"Many members expressed support for extending the committee's forward guidance, but they agreed to defer a decision on this matter until the September meeting," said the minutes. The statement also reiterated the FOMC's intention to extend the average maturity of its securities holdings as announced in June.
"Consistent with the concerns expressed by many members about the slow pace of the economic recovery, the downside risks to economic growth, and the considerable slack in resource utilization, the committee decided that the statement should conclude by indicating that it will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."
The Fed discussed several options of possible action:
- A change in the date over which the Fed expected to keep its target range for the federal funds rate between 0% and 0.25%, perhaps with a statement that a "highly accommodative stance" was likely to be maintained as the recovery progressed. The Fed has pledged to keep rates at "exceptionally low levels" through at least late 2014.
- A third round of quantitative easing (QE3) in a "new large-scale asset purchase program." Some FOMC members said another bond-buying program might boost business and consumer confidence. However others were concerned about how effective QE3 would be and whether it might make it more difficult for the Fed to unwind its large portfolio of assets later. Many officials said it was important for any future program to be flexible to account for changes in the economy, the minutes said.
- Lowering the interest the Fed pays banks on the required and excess reserves they park at the central bank.
The next FOMC meeting will be Sept. 12-13.