Additional monetary accommodation could be warranted fairly soon, many members of the Federal Open Market Committee said in their Aug. 1 meeting, according to the FOMC meeting minutes released by the Federal Reserve on Wednesday.
The question is, is that still true? Not everyone thinks so.
The Fed minutes from the beginning of August show that the rate-setting committee at the Fed discussed various options available should the need for more easing become apparent.
One option discussed was extending the amount of time the Fed expects to hold interest rates at their current ultra-low level targeting the federal funds rate at zero to 25 basis points.
From the minutes:
"Given the uncertainty attending the economic outlook, a few participants questioned whether the conditionality of the forward guidance was sufficiently clear, and they suggested that the committee should consider replacing the calendar date with guidance that was linked more directly to the economic factors that the committee would consider in deciding to raise its target for the federal funds rate, or omit the forward guidance language entirely."
It would be interesting to know exactly what the committee will be looking for regarding economic improvements.
Large-scale asset purchase programs, also known as quantitative easing, were also a hot topic. Some of the benefits of launching another bond-buying program are the downward pressure it puts on longer-term interest rates and the boost it gives to consumer confidence, according to the minutes.
The drawbacks are that any economic improvements could be transitory or even increase the risks to financial stability, or lead to a rise in inflation over time.
Alternatives to programs that would expand the Fed's balance sheet included reduction in the interest rate paid on required and excess bank reserve balances.
From the Fed minutes:
"While a couple of participants favored such a reduction, several others raised concerns about possible adverse effects on money markets. It was noted that the (European Central Bank's) recent cut in its deposit rate to zero provided an opportunity to learn more about the possible consequences for market functioning of such a move.
Informing their discussion were the economic conditions between the June and August meetings. Those conditions have changed somewhat and at least one FOMC member, nonvoting though he is, believes the minutes are too stale to predict further easing, Reuters reported on Thursday.
From the story:
But Bullard, a nonvoting member of the policy-making Federal Open Market Committee, said on CNBC television on Thursday that U.S. data has been somewhat better since the July 31-August 1 meeting and the minutes were "a bit stale."
The story referred to James Bullard, president and CEO of the Federal Reserve Bank of St. Louis, and a known inflation hawk, or someone who opposes additional easing.
The next news from the FOMC will come at the economic summit held in Jackson Hole, Wyo., next week where Federal Reserve chairman Ben Bernanke will speak on Friday, Aug. 31 at 10 a.m.
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