Fed leaders inclined toward new action, wanted more time to decide how
By Neil Irwin
Many Federal Reserve officials were inclined toward new action to boost the economy at their last meeting three weeks ago. But they thought it best to gather more information about the state of the economy and better analyze what form any new action should take before moving forward, according to minutes of the meeting.
The minutes of the Sept. 21 Federal Open Market Committee policy meeting, released Tuesday, reveal a panel that has significant divisions but that also appears supportive of new steps to try to strengthen a faltering economy and increase inflation above its current rock-bottom levels.
The policy statement the officials issued the day of the meeting said that they would be prepared to provide "additional accommodation" to support the economy if necessary. That statement, the minutes released Tuesday said, "accorded with the members' sense" that such accommodation would be needed before long, "but also made clear that any decisions would depend upon future information about the economic situation and outlook."
Indeed, there was a clear sense that the policymakers needed more data about how the economy was evolving, and more time to evaluate specific policy options, before pulling the trigger on any new monetary easing.
"In light of the considerable uncertainty about the current trajectory for the economy, some members saw merit in accumulating further information about reaching a decision about providing additional monetary stimulus," according to the minutes. "In addition, members wanted to consider further the most effective framework for calibrating and communicating any additional steps to provide such stimulus."
The discussion focused on the strategy of purchasing government debt, or Treasury securities, to boost growth. Fed officials could decide to buy hundreds of billions of dollars of bonds with newly created money at their next policy meeting, Nov 2-3.
Officials also considered "possible steps to affect inflation expectations," the minutes said.
If consumers began expecting that inflation would rise, they would have greater incentive to spend money now, lest it become less valuable as time goes on. That could in turn quickly spark economic growth.
Some Fed officials are apparently considering more unconventional ways to boost inflation expectations, such as "providing more detailed information about the rates of inflation the Committee considered consistent with a dual mandate, targeting a path for the price level rather than the rate of inflation, and targeting a path for the level of nominal GDP."
As for the economy overall, Fed officials did not predict a return to recession, but they hardly seemed confident about the outlook.
"A number of participants observed that the sluggish pace of growth and continued high levels of slack left the economy exposed to potential negative shocks," although they judged the economic recovery to remain underway and "generally expected growth to pick up gradually next year."
| October 12, 2010; 2:58 PM ET
Categories: Federal Reserve
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