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Tags: fed | easing | economy | us

Several Fed Members May Favor More Easing if Economy Falters

Wednesday, 16 May 2012 02:40 PM

Several Federal Reserve policy makers said a loss of momentum in growth or increased risks to their economic outlook could warrant additional action to keep the recovery on track, minutes of their last meeting showed.

“Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” according to minutes of the Federal Open Market Committee’s April 24-25 meeting released today in Washington.

Central bankers last month affirmed their plan to hold interest rates near zero at least through late 2014 as they sought to push down an unemployment rate that has stayed above 8 percent for more than three years. Chairman Ben S. Bernanke said following the meeting that policy makers “remain entirely prepared” to take additional actions if necessary.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

The Fed also announced that from now on all of their meetings would last two days to allow “ample time for the committee’s usual discussions.” Currently, some meetings are one-day meetings. Bernanke will now hold press conferences in conjunction with the meetings scheduled for the third month of each quarter, the Fed said.

The minutes show Fed policy makers refining the conditions under which further monetary stimulus could be necessary. At the March meeting, a couple of FOMC members said additional action may be needed if the economy lost momentum or if inflation were too low.


The FOMC also discussed the conditions under which they may change their guidance that the economy is likely to warrant low interest rates through at least late 2014. The minutes cited a lack of confidence in their forecasts as one reason to leave the guidance unchanged.

“Some members recalled that gains in employment strengthened in early 2010 and again in early 2011 only to diminish as those years progressed,” the minutes said. “Moreover, the uncertain effects of the unusually mild winter weather were cited as making it harder to discern the underlying trend in the economic data.”

While policy makers agreed that the date could be revised if economic conditions changed, they said that “preferred adjusting the forward guidance only once they were more confident that the medium-term economic outlook or risks to the outlook had changed significantly.”

The minutes do not identify participants by name.

Central Bank

The Fed said at its meeting that the central bank would continue its swap of $400 billion of short-term debt with long- term debt to lengthen the average maturity of its holdings and help lower the interest rate on Treasuries, a move dubbed Operation Twist. The Fed is scheduled to complete the program at the end of June.

Richmond Federal Reserve Bank President Jeffrey Lacker dissented twice at the meeting. He cast a vote against the extension of reciprocal currency swap arrangements with the central banks of Canada and Mexico because he opposes foreign exchange intervention by the Fed and direct lending to foreign central banks, the minutes said.

Lacker also voted against the 2014 pledge in the FOMC’s statement because in his view “an increase in the federal funds rate was likely to be necessary by mid-2013 to prevent the emergence of inflationary pressures,” the minutes said.

Employers added 115,000 jobs in April, the least in six months and less than forecast by economists, a Labor Department report showed on May 4. The unemployment rate fell to 8.1 percent, the lowest since January 2009, as people left the labor force.

Recent Reports

More recent reports have allayed concern the labor market is cooling. First time claims for unemployment benefits declined to a one-month low of 367,000 in the period ended May 5, Labor Department data showed last week.

The central bank said in forecasts released with its April statement that it expects the unemployment rate to fall to 7.8 percent to 8.0 percent by the final three months of this year. Gross domestic product is likely to rise by 2.4 percent to 2.9 percent this year, according to the so-called central tendency estimates that exclude the highest and lowest forecasts.

Economic growth slowed to a 2.2 percent annual rate in the first quarter of this year from 3 percent in the final three months of 2011.

A stabilization of housing, the industry at the heart of the financial crisis, may boost the economy.

Housing Starts

Builders broke ground on more homes than anticipated in April, Commerce Department data showed today. Starts rose 2.6 percent to a 717,000 annual rate. The National Association of Home Builders/Wells Fargo index of builder confidence jumped to a five-year high in May, a report from the group showed yesterday.

“The headlines for the last three months in housing have been much better,” Douglas Yearley, the chief executive of Toll Brothers Inc., the largest U.S. luxury home builder, said in a May 9 teleconference. “Unemployment is beginning to come down and I think everybody just feels better about where housing is, where the economy is, and we’re all seeing the benefit of that.”

Industrial production, a mainstay of the expansion, is extending its gains, a report from the Fed showed today.

Output at factories, mines and utilities increased 1.1 percent last month, the most since December 2010, after a 0.6 percent decline in March that was revised from no change, the Federal Reserve reported today in Washington. Economists forecast a 0.6 percent gain, according to the Bloomberg News survey median.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

© Copyright 2022 Bloomberg News. All rights reserved.

Wednesday, 16 May 2012 02:40 PM
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