Federal Reserve Leaning Toward More Stimulus

Aug. 22, 2012
Fed looks at pulling long-term interest rates further below their already low levels.

Policy makers at the U.S. Federal Reserve are leaning toward more stimulus action "fairly soon" unless economic data turns around, minutes from their meeting three weeks ago showed Wednesday.

The minutes revealed most members of the Federal Open Market Committee were concerned about slowing growth and the vulnerability of the economy to external threats, particularly economic instability in Europe.

"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," the record of the July 31-Aug. 1 FOMC meeting said.

"A number of members noted that if the recent modest rate of economic growth were to persist, the economy would be less able to weather a material adverse shock without slipping back into recession," it added.

Fed members discussed the merits of different approaches to sparking more drive in the economy, mainly aimed at pulling long-term interest rates further below their already ultra-low levels.

Some said that a new Fed program to purchase Treasury and other bonds, pressing down their yields, "might boost business and consumer confidence," while demonstrating that the committee remains focused on lowering unemployment while keeping inflation under control.

In the end, the FOMC put off any new action, but the minutes show the policy makers closer to moving on a new stimulus plan at their next meeting on Sept.12-13.

Since the beginning of August, indicators of the health of the U.S. economy -- manufacturing production, consumer spending, home prices, and others -- have remained mixed, with economists keeping their estimates of the current pace of economic growth at around 1.9% to 2%.

At that pace, the FOMC members were also worried about the economy's ability to withstand shocks.

"Many participants judged that a high level of uncertainty about possible spillovers from the fiscal and banking strains in the euro area" was holding up business and household spending, the minutes said.

"And they saw the possibilities of an intensification of strains in the euro area and of a sharper-than-anticipated U.S. fiscal consolidation as significant downside risks to the economic outlook."

Although the Fed officials mostly agreed that the U.S. financial and business sector had grown more resilient since the 2008-2009 crisis, "some were concerned that at its current pace, the recovery was still vulnerable to adverse shocks."

Copyright Agence France-Presse, 2012

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