–‘A Few’ Say Further Stimulus Likely Will Be Necessary to Boost Growth
–Several Say Explore Developing New Tools to Promote More Accommodation

By Brai Odion-Esene

WASHINGTON (MNI) – Several members of the Federal Open Market
Committee remain open to the idea of additional action, but only if the
U.S. economic recovery grinds to a halt and there is a risk of
deflation, according to the minutes from the June 19-20 FOMC meeting
released Wednesday.

On the other hand, the minutes showed “a few” thought the Fed
likely will need to take more action to help the jobs market.

Several members of the Fed’s policy-setting committee also brought
up looking into developing “new tools” that would further ease financial
conditions and therefore boost the recovery, the minutes showed.

“Almost all members saw the unemployment rate as still elevated
relative to levels that they viewed as consistent with the Committee’s
mandate,” the minutes said.

The expectation among members was for economic expansion over the
coming quarters to be moderate and then pick up very gradually, with the
jobless rate falling “only slowly.”

“Most projected somewhat slower growth through next year, and a
smaller reduction in unemployment, than they had projected in April
(FOMC meeting),” the report said.

As a result, “A few members expressed the view that further policy
stimulus likely would be necessary to promote satisfactory growth in
employment and to ensure that the inflation rate would be at the
Committee’s goal,” it said.

However, “Several others noted that additional policy action could
be warranted if the economic recovery were to lose momentum, if the
downside risks to the forecast became sufficiently pronounced, or if
inflation seemed likely to run persistently below the Committee’s
longer-run objective,” the minutes said.

“The Committee agreed that it was prepared to take further action
as appropriate to promote a stronger economic recovery and sustained
improvement in labor market conditions in a context of price stability,”
it added.

The FOMC statement following the June meeting maintained the
group’s expectation that rates likely will need to remain at historic
lows until late 2014, and the maturity extension program was continued
through year-end by a total face value of $276 billion.

“Members again noted that the forward guidance is conditional on
economic developments and that the date given in the statement would be
subject to revision should there be a significant change in the economic
outlook,” the minutes said.

As for the maturity extension program known as “Operation Twist,”
all but one member agreed it would be appropriate to continue through
the end of 2012, according to the minutes.

But, “Several members noted that the downward pressure on
longer-term rates from continuing the Committee’s maturity extension
program was likely to be modest,” it added.

Some members highlighted the risk continued purchases of
longer-term Treasury securities could, at some point, lead to
deterioration in the functioning of the Treasury securities market that
could undermine the intended effects of the policy.

“However, members generally agreed that such risks seemed low at
present, and were outweighed by the expected benefits of the action,”
the minutes said.

And perhaps to ensure the Fed’s bases are covered, it said, “A few
members observed that it would be helpful to have a better understanding
of how large the Federal Reserve’s asset purchases would have to be to
cause a meaningful deterioration in securities market functioning, and
of the potential costs of such deterioration for the economy as a
whole.”

In a discussion about strains in global financial markets and the
potential for a major spillover from Europe, the minutes said “several
participants commented that it would be desirable to explore the
possibility of developing new tools to promote more accommodative
financial conditions and thereby support a stronger economic recovery.”

The Fed has been working steadily to improve its communications and
transparency, and the minutes revealed that many members raised the
possibility of constructing a “quantitative economic projection and
associated path of appropriate policy” that reflected the collective
judgment of the FOMC.

These participants believe “such a projection could potentially be
helpful in clarifying how the outlook and policy decisions are related,”
the minutes said.

The report said the FOMC members generally indicated a willingness
to explore adjustments to the Summary of Economic Projections, which
provides information about participants individual economic projections
and their forecasts regarding the appropriate path of monetary policy.

They stressed, however, the importance of communicating not only
the FOMC’s collective judgment but also “the diversity of their views
regarding the economic outlook and monetary policy.”

“At the end of the discussion, the Chairman asked the subcommittee
on communications to explore the feasibility and workability of
potential approaches to developing an FOMC consensus forecast,” the
minutes said.

** MNI Washington Bureau: 202-371-2121 **

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