Bloomberg News

A Few FOMC Members Said Outlook May Warrant More Easing

November 29, 2011

(Updates with economist quote in seventh paragraph.)

Nov. 22 (Bloomberg) -- Some Federal Reserve policy makers said the central bank should consider easing policy further, according to minutes of their Nov. 1-2 meeting.

“A few members indicated that they believed the economic outlook might warrant additional policy accommodation,” the Fed said in minutes released today in Washington. “It was noted that any such accommodation would likely be more effective if it were provided in the context of a future communications initiative.”

The central bank also considered changing its pledge to hold interest rates near zero through at least mid-2013, as “a few members expressed interest in using language specifying a period of time during which the federal funds rate was expected to remain exceptionally low, rather than a calendar date, arguing that such language might be better to indicate a constant stance of monetary policy over time,” the minutes said.

Policy makers led by Chairman Ben S. Bernanke are considering further easing to reduce an unemployment rate stuck near 9 percent even as recent data indicate the economy is picking up. Bernanke, at a press conference after the last meeting, said the “pace of progress is likely to be frustratingly slow.”

Stocks, Treasuries

Stocks fell as slower than anticipated economic growth in the third quarter overshadowed the Fed report. The Standard & Poor’s 500 Index fell 0.4 percent to 1,187.73 as of 3:07 p.m. in New York. The yield on the 10-year Treasury note fell two basis points to 1.94 percent.

The Fed released the minutes early after Reuters inadvertently published the information ahead of the permitted time of 2 p.m.

The FOMC said at its gathering last month that the economy in the third quarter picked up while “significant downside risks” remained. The panel refrained from taking any new steps to ease monetary policy.

“The economic data have been a little better than expected so I think the urgency for QE3, or some other type of policy accommodation has probably diminished to some degree,” Stephen Stanley, chief economist for Pierpont Securities LLC in Stamford, Connecticut, said in reference to a possible third round of large-scale asset purchases.

Forward Guidance

“There’s still a real need for them to clarify not just the narrow issue of forward guidance on the funds rate but more generally the very broad strategic issues around what exactly the Fed is trying to do,” Stanley said.

The Fed left its benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008, and reiterated language from its August and September meetings that the rate is likely to stay very low through at least mid-2013. The central bank continued its so-called Operation Twist program to buy $400 billion of longer-term securities and sell $400 billion of short-term debt.

The committee discussed options for improving its communication policies, and Bernanke asked the Fed’s subcommittee on communications to “give consideration to a possible statement of the Committee’s longer-run goals and policy strategy,” the minutes showed.

“He also encouraged the subcommittee to explore potential approaches for incorporating information about participants’ assessments of appropriate monetary policy into the Summary of Economic Projections,” the minutes said, referring to the economic forecasts of FOMC members that are released four times a year.

Presidents Differ

In speeches this month, Fed presidents have differed over whether the economy requires additional easing.

More action “may be needed” to reduce “persistently high unemployment,” San Francisco’s John Williams said Nov. 15 in Scottsdale, Arizona. The Boston Fed’s Eric Rosengren said last week that lower interest rates still have the ability to boost growth. James Bullard of St. Louis said the central bank’s policy is “appropriately calibrated” and should only be loosened if the economy deteriorates.

Additional asset purchases would constitute a third round of so-called quantitative easing after the Fed bought $2.3 trillion in housing and government debt in two rounds from December 2008 to June 2011.

The economy expanded less than previously estimated in the third quarter, reflecting a drop in inventories that points to a pickup in growth as 2011 comes to a close, a Commerce Department report showed today.

GDP Report

Gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate. Excluding stockpiles, so-called final sales climbed 3.6 percent, the most since last year’s fourth quarter.

Today’s GDP report followed data on housing, industrial production and retail sales that indicated the economy is gaining strength.

Fed policy makers discussed developments in financial markets, including the bankruptcy of MF Global Inc. The Fed “saw the financial stability implications of this development as limited to date,” according to the minutes. Participants “took note of the possible adverse effects on U.S. financial markets and the broader U.S. economy if European sovereign debt and banking problems intensified.”

In his post-meeting press conference, Bernanke said that purchases of mortgage-backed securities are “a viable option” for a third round of purchases “if conditions were appropriate.” He declined to say what conditions could warrant such a move.

Payroll Growth

The Fed met before the Labor Department announced on Nov. 4 that the economy added 80,000 jobs in October. That followed 104,000 jobs in August and 158,000 in September.

The central bank added new charts of the direction of risks to its economic outlook, released in its summary of economic projections. According to the charts, 11 policy makers saw risks weighted toward lower economic growth, while none saw so-called upside risks.

Four policy makers saw risks of inflation being lower than expected, while three saw risks of higher inflation. The remaining 10 policy makers saw inflation risks as “broadly balanced.”

The pace of job and economic growth is weighing on shoppers at merchants like Wal-Mart Stores Inc., the world’s largest retailer.

“Our core customer was still impacted by high unemployment and continued uncertainty over the economy, leading to declining consumer confidence,” Bill Simon, the top U.S. executive for Wal-Mart, said in a Nov. 15 conference call with analysts.

--Editors: Chris Wellisz, Gail DeGeorge

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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